There are dozens of these types of posts, I know, but would love some thoughts on my situation.
Currently own a 2BR/2BA apartment in a VHCOL city (NYC area, but in New Jersey). Bought the place for 865k at 10% down in 2021, and owe about 690k on the loan. Our all-in monthly payment is 4700 (PITI, HOA), and our loan interest is ~2%.
Currently, comps for similar apartments are anywhere between 4500-5000/month.
We bought a new house and are moving south (to NC), and are considering keeping our current place, looking to rent it out for 4500-4600.
The apartment has already appreciated (sales comps put the FMV at around 1-1.1M), and, given the growth expectation for this area (and the limited inventory in this specific city), home values will continue to appreciate substantially.
The current plan is to rent the place out at near break-even, and essentially build free equity in the place, with the intent to sell it 5-7 years down the line (estimating we’ll be able to sell it for around 1.25M by then).
Income wise, we’re dropping from 2 household jobs to 1… my take-home every month is around 18k.
New place is cheaper (3900$ all in mortgage) and our general monthly expenses will shrink by about 60%… we’ll probably going to be able to pocket around 6k/month in cash from my income after all expenses are said and done. All that being said, we’re pretty comfortable with losing a few hundred per month on this rental, and can feasibly float both mortgages for a few months if push comes to shove.
Ultimately, my thought process is that I know this property will not cash flow short term, but will likely cash flow in 4-5 years, and provide a pretty nice return in 7 or so years.
Am I being overly optimistic?
Should I rent out my starter home
byu/Gfppaste inrealestateinvesting
Posted by Gfppaste
7 Comments
I’m 90% sure I live where you’re referencing. Tons of new development (specifically condos) in the next 3-5 years. Outdated condos become less attractive at that price point with all the new inventory. Hudson County has seen a dip in condos sales and Edgewater/Weehawken has been decent.
I’d take into consideration maintenance/repairs, management, water expenses when budgeting for the “breakeven” rental. You’ll likely lose ~ $500/month.
Me personally? I’d sell and take the $400k in equity.
Let’s say you didn’t already own this house, but you had $400k in the bank. Would you use that $400k to buy a house to rent out? If not, then sell this house.
I have stuff in nyc and nj.
Houses appreciate pretty well, apartments not so much. Building maintenance, taxes, and new supply will all keep pressure on the price. Unless you are located near something extraordinary its unlikely to appreciate as much as you may think/believe. Losing money every month doesnt sound very smart especially if you think you have a decent amount of equity coming out of a sale.
It seems like either your rental figure is off or your actual sales price.
If i was in your shoes i would sell.
The gain is not taxed as a current and recent resident.
250,000 per person exempt gain, 500,000 if a couple.
Gain will be taxed as a rental for 5 years.
Do it
A toss up in my mind given what you stated here.
Some things to consider from a financial and tax perspective.
1. You may be able to offset other income with a “loss” due to depreciation on a rental.
2. Repair and maintenance expenses are typically included as deductions.
3. Don’t forget to consider potential vacancies. Also any management agent commissions if you do not plan to manage it yourself.
4. Your insurance coverage *may* go down if you convert to a rental since you would likely get a hazard insurance policy (and not personal belongings).
5. Definitely consult with a tax advisor as it really depends on your personal situation. I am not a tax advisor.
With the drop in income, I would not rent your home. Sell it and take the cap gains exclusion now.