From your questions, it's clear you need more detailed and comprehensive advice than we can offer here. And it sounds as if you need to start from square one.

First, I'm not a CPA or a lawyer

However, a $500 a month negative cash flow is horrendous. On top of that, you have to count repairs and vacancies. Figure/assume at least 8.5% vacancy factor (one month a year), and assume maintenance equal to 1% of the value of your property. Those are rough numbers, but usually come pretty close. So, now are you looking at $700 a month negative? $800 a month negative? That's almost always a terrible investment.

Sure, you'll be able to recover some of that loss on your tax return. Again, I'm not a lawyer. But assume you've got a $700 a month loss. That's $8,400 a year. If you're in the 28% tax bracket, you'll "save" $2,352 in taxes. That means you're still out of pocket $6,000 a year.

Now, some would argue that if property values were rising enough to cover that loss, that ultimately, when you well, you'll still come out ahead. OK. So, honestly, what do you think property values are going to do in the next year or two? I think they may continue to drop, which will just compound your losses.

Another point: If you want to get a mortgage on a new property, the lender will first ask to see a signed lease for your current condo. Let's say, and we'll just make up numbers here, that your current mortgage payment is $2,000 and the rental income is $1,500. The lender will "discount" the rental income, usually to about 75%. So even if you are taking in $1,500 every month, the lender will only credit you for $1,125. So, when the lender calculates your income-to-debt ratio and your monthly income, it'll assume a $825 monthly loss ($2,000 minus $1,125). You'd better check with a good mortgage broker to see what kind of mortgage you'd be able to get if you suddenly had additional monthly expenses of $825.

And I'm, ahem, surprised that someone would advise you to go to Staples or Office Depot for your forms. Landlord/tenant issues are not only state-specific, but usually city or county specific, as well. A generic, all-purpose form will leave you unprotected, and may even open you up to fines, penalties, and lawsuits. For example, different jurisdictions have regulations about how much you can charge for a security deposit, and how that security deposit must be handled. Charge more than your city or county allows, and you could face fines.

Also, since you own a condo, the condo's bylaws and other regulations apply to you, to the extent they address rentals, and to your tenant, to the extent they address resident behavior.

My advice: Don't rent it out. If you really want to move up, then sell the condo.

Hi Sidney,

My take on your question is a bit different I believe. If your main goal is to upgrade in housing, then the situation is not necessarily negative. Although you will not likely get top dollar or make a large profit from selling, you will be buying in a buyer's market with very low interest rates, which should offset the selling side. Look at it this way, what if it were a seller's market and you sold for top dollar? You would also be buying at top dollar and may not be able to afford the upgrade. Either way has it's pros and cons.

Sidney:

It is a hard question to answer and I have many Sellers in the same predicament. There are many good scenarios to point out. The first one would be that even if you sell your condo at a realistic price to reflect market conditions, you can buy an upgraded property at a fair value as well. Also, with the equity that you have in your condominium you can invest it to increase the downpayment on your new home and have a much lower payment that eases your anxiety if a full blown up recession develops.

I studied property management a long time ago with a local expert. It gives a good overview of the practical and financial considerations of purchasing and managing rentals profitably. Much of what was taught would not directly apply to your situation. With the resources available today (books, the internet, online courses) it is cheaper and more convenient to study anything imaginable. You also have the option of picking the topics that apply directly to your situation. I suspect 20-40 hours of casual study would give you a good basis for a decision. You should still consult a tax adviser for current answers to that question.

Dot is right about the tax advice, I'm not a tax advisor or CPA either. But I am a businessman and know that if you turn the condo into a business you can deduct the taxes and that you can carry a loss forward. But the key word there is loss (shiver).

Your problem will be that your business will be losing $6000 per year on the differrence between the rent and the note plus the overhead costs. Your taxes are only about one-half that (I'm guessing). That means you are still losing money. No business can sustain that for long. Sure, property values will rise and sooner or later you will show a profit, if and when you sell the property or rents rise.

If it is a good investment only time will tell. What I am getting at is this; right now you are essentially at break even. If you sell now you don't lose anything, you just have not made any profit on the home you have enjoyed these last years. If you look at it like an investment such as stock, breaking even isn't the end of the world.

If you turn the condo into an income property your ownership fo that property will become ever more complicated. For instance, Renters that you chose or some management service (more overhead) chooses may not be as nice to the property as you were. They might move out three months after they move in and leave damages and a mess that you will fix or pay to have it fixed. These expenses are figured into the profit or loss of your business.

So, you are getting farther and farther from break even.

I suggest you sell now, salvage your original down payment and use it for the enjoyment of your new home.

I'd like to talk with you about listing your property. I can help.

James Baker, 760-445-1534

Hi, Sidney. You have asked some great questions. You will need to ask a tax expert (CPA) your tax questions. Anyone on this board (unless they are a CPA) could not give you reliable info in that regard.

Yes, if you are $500 short you would need to make that up - it would be $500 out of your pocket each month. Have you considered refinancing your condo in order to lower the payment? Even refinancing right now is difficult with the drop in value.

How long have you been in your condo? If it has been long enough that you have enough equity built up then you should be okay..

I have had renters in the past. You can get forms at Staples or Office Depot for your applicants and for the lease.

I would just make sure that everything in the condo is working properly before tenants move in. To judge how many repairs I would just think about how many repairs I've done already.