Home Selling in 08837>Question Details

Aiyer, Home Buyer in New Jersey

sell or rent?

Asked by Aiyer, New Jersey Sat Aug 25, 2007

I have a 2bd/2 br condo in edison,nj. it is a well maintaied one. I wud get a rent of 1550, am paying my mortgage for 1300. i am moving to a bigger home. shud i sell or rent this condo?

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Hello Aiyer:

I tend to agree with Ed that if after looking at all your financial situation and you have decided you can afford the new mortgage and maintain the living standard you would like to have, then go ahead and keep the condo.

However, I would suggest you do a more detailed evaluation other than just the rental income and mortgage. In your model, you will want to consider the HOA fee, property management fee if you decide to use a property management company, maintenance expense, vacancy rate allowance, utilitiy fee if it is customary for you to pay utility around your area, property Tax on both home, both mortgages, the two mortgages, insurance and such. Perhaps the interest rate on your condo loan is also very favorable?

I personally favor investment properties as property value eventually go up if it's in a desirable area; just want to make sure you are not taking on too much that you don't want to take on.

Sylvia
2 votes Thank Flag Link Sat Aug 25, 2007
Sylvia Barry,…, Real Estate Pro in Novato, CA
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You have a positive cash flow on the condo. Property values are down. If you do not need the cash from the sale of the condo to buy your new home, I suggest renting it out until the market turns around. You will get more tax write off and you retain a second appreciable assett. If you rent it out it will become 1031 property and may have a taxable event if you sell it when the values go back up but you can also exchange it into another property later and continue to build your real estate fortune.
2 votes Thank Flag Link Sat Aug 25, 2007
That depends upon your needs... As we all know Condo prices are a little flat a the moment. If you can move on, rent it out with a positive cash flow... this is pretty much a no brainer. Rent it and await better condo sale days!
Web Reference: http://www.johnsacktig.com
1 vote Thank Flag Link Sat Oct 6, 2007
If you decide to rent out your present home, will your rental income cover the ongoing expenses associated with the property? Will it cover mortgage payments, property taxes, and insurance? If not, determine whether you can afford to cover the difference on an ongoing basis. Will the tenants be responsible for all utilities, or will you have to cover some of these expenses? Consider what your anticipated annual maintenance expenses on the property might be. Most importantly, if the property were vacant even for a brief period, think about whether you could cover these expenses without a steady stream of rental income.
1 vote Thank Flag Link Thu Oct 4, 2007
Aiyer:
You have some very helpful answers. Just a few more thoughts:
My wife and I became "accidental real estate investors" in a situation similar to yours.
First, I suggest that you run your proposal by a local CPA that can share with you the tax consequences.
Second, I suggest a great book 'The Millionaire Real Estate Investor: by Gary Keller, Dave Jenks, and Jay Papasan. It was on the NY Times best seller list, very good advice for investors.
Third, I think this good be an excellent way for you to create some additional income, both long and short term.
1 vote Thank Flag Link Sun Aug 26, 2007
Keith Sorem, Real Estate Pro in Glendale, CA
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Love Ed's answer.

One thing to remember, though: you must pay tax to the IRS on your rental income. But, the good news is that there are expenses that you may deduct on your tax return, too, like: interest, maintenance, depreciation, losses, etc. These deductions will reduce the amount of rental income, so don't forget to keep track of those!

Good luck - lucky you that the rentals in your market will cover your operating costs. What a great opportunity for you to hold on to an appreciating asset!
1 vote Thank Flag Link Sat Aug 25, 2007
Patti Pereyra, Real Estate Pro in Chicago, IL
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Aiyer,
If you are financially in a position to rent the condo I would suggest you rent. With prices working against the seller right now, it would seem like a good idea to hold on to it if you can and sell if you are ready when the market stabilizes. Carrie
Web Reference: http://carriecrowell.com
1 vote Thank Flag Link Sat Aug 25, 2007
Aiyer,
You received GREAT answers from Ed and Sylvia. I tend to agree that if you can afford the new home without selling the condo, keep it. If only for the short term (say another 2-3 years) until the market picks up a bit. If the condo was your primary residence, when you do sell it, if you have lived in it for at least two of the five proceeding years before the sale, you can still have some tax exempt income (profit) from the sale. Also consider the risks and headaches of being a landlord--it may not be worth it to you personally (maybe you're handy--maybe not). When figuring out your financial bottom line for the condo, be sure to leave a cushion for "vacancy rate"--those times between tenants when you'll have no income from the property. The ideas here are a very good start; but you need to speak to a local REALTOR with residential investment experience and go over the specifics. He/she will help you develop a long term plan. Best of luck and happy hunting!
1 vote Thank Flag Link Sat Aug 25, 2007
To pull your capital gain without tax liability, you will need to sell. If you rent, and sell a few years from now, you will have to do a 1031 exchange to defer tax, but it will be owed. If you have maintained this as a primary residence for 2 of the last 5 years, you have options that you won't have in the future. Weigh the cost of sale and acquisition, also. Consult a tax advisor for specific advice. These general statements do not form an agency relationship or advice for your particular circumstances, and are for informational purpose only.
0 votes Thank Flag Link Thu May 8, 2008
Deborah Madey, Real Estate Pro in Red Bank, NJ
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I hope it is NOT too late for me to give you CORRECT suggestion.

1. You want to sell it because you sounds you made some good appreciation, and within 5 years you have to live there 2 years to get tax FREE capital gain. If you wait, you may pass the time and not qualified, also if Democrat won the president as it looks like, this tax advantage may be gone.

2. Edison 2br 2ba condo is very easy to sale and the price not much change, unlike all other area that other realtors represent. Their area 2br 2ba condo may be soft, but NOT Edison.

3. For example, if your 2br 2ba condo is at Edison Hollow South http://raspberryct.blogspot.com/ which is SOLD OUT, your 2br 2ba would help some first time buyer's American Dream come true. All you need to do is hold an open house and get Jose 732 979-9100 (cell) to deliver 1,000 invitation flyers to prospective buyer communities such as Edison/Blueberry Village Apt (rented out), Rivendell Apt (rented out) ...etc.

4. Venu sold his 2br 2ba condo at EHS in 2007 and bought a 3br townhouse at Edison Manor and take the advantage of Tax Free capital gain, same as Kelly who sold her 2br 2ba condo and bought a $650k house in Edison. They all sold their units in one or two open house buy getting 1,000 flyers to the apartment complex, sulekha.com and craigslist.

Of course, if you want to keep the 2br 2ba condo, rental in Edison/Piscataway area is also very easy; Jimmy just bought a 2br 2ba condo at Woodhaven http://woodhavenatedison.blogspot.com/ for investment and rented at $1,650. Teck bought 3 more 2br 2ba condo at Maple Woods http://maplewoodsatpiscataway.blogspot.com/ and one I know rented it to a Johnson Johnson employee for $1,900.
0 votes Thank Flag Link Sun Feb 10, 2008
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