When the time comes to move out of your condo, it doesn’t necessarily mean it’s time to move on. While you may decide to sell your unit and pocket the proceeds (or absorb the loss), you also have the option of holding on to it and renting it out to tenants. This is an important choice and one that will have significant financial and practical implications on your life for years to come.
So, how do you make the call? What are the upsides and downsides, and what factors should you consider as to whether to become a former condo owner or a landlord?
Positive Cash Flow
Money may not be everything, but it is undoubtedly the biggest thing when it comes to selling v. renting. This means determining whether your unit will produce positive cash flow if you bring in a tenant. Put another way, will you make more from rent than you will spend on all of the expenses involved in remaining an owner?
To figure this out, you need to know what you can potentially charge for rent, given the nature of your unit and the current market. You also need to ensure you consider all of the costs of continued ownership, including:
- Mortgage principal and interest
- Insurance, the rates for which will likely increase every year.
- Inevitable repairs
- HOA fees
- Management fees (if you retain a property manager)
- Potential vacancies for several months
Return on Investment
The other significant money question involves looking at how much you would make or lose if you sold your unit today. That means a bit of prognostication about where the market is heading. If the value of your condo is likely to increase over the coming years, holding on to it and selling it at a later date may be more profitable, especially if it is producing positive cash flow in the interim. If, on the other hand, things look uncertain or grim, getting out now may be the better call.
Keep in mind that the income you generate from renting your condo will be subject to taxes at your ordinary rate. However, you can also deduct and write-off all costs involved in renting the unit. You can also claim a tax deduction for the depreciation of your condo as well.
Do You Want To Be a Landlord?
Renting your unit isn’t all about cash flow. It means becoming a landlord. That means finding renters, dealing with tenants, handling repairs, collecting rent, and addressing problems on a regular basis. You may also need to do all of these things while living hundreds or thousands of miles away. You need to ask yourself whether you have the patience and inclination to deal with the landlord life.
If the answer is no, but it still makes more dollars and sense to hold on to your condo, you can hire a professional management company to handle all of the dirty work and take on all of the stress. Of course, property managers don’t work for free, so if you decide to go this route you will need to incorporate their fees into your cash flow calculations.
After carefully considering these factors, you can make an informed decision as to whether your condo will remain a part of your life or become a distant memory.