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Spinoff of my “Minimum Monthly Income On A Rental As A % Of Purchase Price?” post
Posted on 1/9/25 at 4:44 pm
Posted on 1/9/25 at 4:44 pm
In that other thread, we discussed rental income levels to consider when looking to get into a rental property, but what about knowing when to get out of a rental property that has greatly appreciated in value?
Full transparency: We bought a 2BR/2BA condo in Auburn 2 blocks from campus in 2018 for $190,000. The owner was getting $1,900/month gross rental income when he sold it to us, so that checks out nicely with what we talked about in the other thread. Our last child just finished using the condo, so we are looking to begin renting it and it appears we can get about $2,400-2,500/month gross, BUT….over the past year, these units are selling for $500k+, and selling in less than 2 weeks. The last one sold recently for $540k and it’s right next to mine.
So, what sort of metrics do you experienced rental folks look for to know when to get out? Just based on the continued and accelerating annual appreciation in value, I can’t imagine getting rid of it now, but there has to be a point that it would make sense for me to offload it. I just don’t have a clue what that point is.
Full transparency: We bought a 2BR/2BA condo in Auburn 2 blocks from campus in 2018 for $190,000. The owner was getting $1,900/month gross rental income when he sold it to us, so that checks out nicely with what we talked about in the other thread. Our last child just finished using the condo, so we are looking to begin renting it and it appears we can get about $2,400-2,500/month gross, BUT….over the past year, these units are selling for $500k+, and selling in less than 2 weeks. The last one sold recently for $540k and it’s right next to mine.
So, what sort of metrics do you experienced rental folks look for to know when to get out? Just based on the continued and accelerating annual appreciation in value, I can’t imagine getting rid of it now, but there has to be a point that it would make sense for me to offload it. I just don’t have a clue what that point is.
10
Posted on 1/9/25 at 4:48 pm to auwaterfowler
Don't sell unless you have a plan for that money that is "better" or more efficient than collecting the rental income.
I guess if you can only get .5% RTV then maybe that's a sign to cash out.
I guess if you can only get .5% RTV then maybe that's a sign to cash out.
Posted on 1/9/25 at 4:55 pm to auwaterfowler
We bought a 2BR/2BA condo in Auburn 2 blocks from campus in 2018 for $190,000...
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Now worth $500,000.
Sounds like you've been averaged about $50K/YR over the last six years in appreciation. Not too shabby.
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Now worth $500,000.
Sounds like you've been averaged about $50K/YR over the last six years in appreciation. Not too shabby.
Posted on 1/9/25 at 5:07 pm to ItzMe1972
I bought one in Tuscaloosa for my two to live in while in school. I thought it had crazy appreciation but Auburn's market is unreal. Congrats
To your question, we kept ours and rent it through the condo's management company (10%). Our 2.9% interest rate combined with the rental income being more than all the expenses is too good to let go.
To your question, we kept ours and rent it through the condo's management company (10%). Our 2.9% interest rate combined with the rental income being more than all the expenses is too good to let go.
Posted on 1/9/25 at 5:15 pm to auwaterfowler
There’s no way that will work as a rental. If monthly rent and property values diverged that dramatically it means none of the other co-owners view it as a rental. The condo association will become increasingly aggressive if people start renting in order to protect the property value.
Posted on 1/9/25 at 5:26 pm to lsuconnman
Yes, as best I can tell, the new buyers are either doing short-term rentals or not renting at all (bought for a kid to use or using it as a gameday place). I see lots of out of state tags in our complex, including some from California. It’s a small complex of only 15 total units. Also, most everything within walking distance of campus are rental-only places, so at any given time there are rarely more than a couple of properties for sale. It’s a crazy market in downtown Auburn and I am so glad we bought less square footage close to campus instead of opting for more square footage a couple of miles out.
Posted on 1/9/25 at 5:42 pm to auwaterfowler
If the others start renting it’s time to sell. Once it becomes viewed as a rental complex, the property value will revert to whatever investors think the rental income will support.
Posted on 1/9/25 at 9:43 pm to auwaterfowler
In a situation like this, could you gift the property to student to live in for last 2 of years of school and they'd get to take advantage of capital gains exclusion if they sell within 5 yrs? How would depreciation recapture work if it was a rental prior to gift?
Posted on 1/9/25 at 9:54 pm to auwaterfowler
Sell
Posted on 1/10/25 at 5:13 am to auwaterfowler
I would sell, but I am a simpleton.
Posted on 1/10/25 at 7:20 am to lsuconnman
quote:
If the others start renting it’s time to sell. Once it becomes viewed as a rental complex, the property value will revert to whatever investors think the rental income will support.
Great answer.
Yes, I would be selling.
Posted on 1/10/25 at 7:45 am to auwaterfowler
$540,000-$180,000=$360,000
$360,000 in VOO - 10.86% annualized return over last 10 years would be $39,096 or $3258 per month without the overhead of operating a renting such as insurance, management fees, taxes, repairs, etc.
Take $2,400 per month to use to improve your life, reinvest the other $858 and your asset will appreciate to match real estate appreciations. In 10 years, you will have another $183,648 just on your reinvestments. So your monthly pay out will also increase over those 10 years to combat inflation.
$360,000 in VOO - 10.86% annualized return over last 10 years would be $39,096 or $3258 per month without the overhead of operating a renting such as insurance, management fees, taxes, repairs, etc.
Take $2,400 per month to use to improve your life, reinvest the other $858 and your asset will appreciate to match real estate appreciations. In 10 years, you will have another $183,648 just on your reinvestments. So your monthly pay out will also increase over those 10 years to combat inflation.
Posted on 1/10/25 at 7:48 am to auwaterfowler
Sell the rental property.
Lock in a win. Property values can go down. Your timing on this looks about perfect.
Lock in a win. Property values can go down. Your timing on this looks about perfect.
Posted on 1/10/25 at 8:12 am to auwaterfowler
quote:
over the past year, these units are selling for $500k+, and selling in less than 2 weeks. The last one sold recently for $540k and it’s right next to mine.
I’ve run into this a few times where I had a relatively inexpensive property collecting a rent that was well over operating costs and then doubled in resale value.
For me personally, I hate having unrealized gains in assets. So when the value of a rental property goes up significantly I sell. Over the years I’ve sold rental properties that were collecting great rents and then bought other properties often in different markets in other states via 1031 exchanges.
The result hasn’t necessarily raised my annual income but it has significantly raised the value of my real estate portfolio.
Posted on 1/11/25 at 10:59 am to shotskimakesmysat
There are so many variables. Maybe he has a ton in the stock market and needs diversification?
It’s hard to say the right answer.
It’s hard to say the right answer.
Posted on 1/11/25 at 12:24 pm to auwaterfowler
quote:
Full transparency: We bought a 2BR/2BA condo in Auburn 2 blocks from campus in 2018 for $190,000.
These are the questions I'd ask myself.
How do you think that area will fair in 5 years?
How do you think condos will fair in 5 years?
Do you have another property you are interested in?
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