Home Selling in Lombard>Question Details

Ming D, Home Buyer in Illinois

rent or sell

Asked by Ming D, Illinois Thu Jun 26, 2008

I’m getting married, and we are buying a single family house.If I sell my condo now, I will lose $20-30k. I’m thinking what if I rent it out for a year and then sell. The rent will not cover everything I’m paying for ($150 short a month). I know I will still lose in a year, but the property will become rental and the loss is tax deductible. Is renting our worth trying, or should I just take the loss and walk away clean? People keep telling me that the profit from the new house in the future will recover the loss on the condo. Is it true?

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Rent it out.....being short $150 a month is nothing when you are taking a 20k-30k loss. Therefore, rent it out and wait for the market to turn. Even if the market turns 5 years from now you will have a $11,000-$21,000 gain. ($150 loss x 5 years = $9,000 loss + 20k-30k gain = $11,000-$21,000 gain).

Also, keep in mind about capital gain exclusion for your primary residence. So you don't want to hold onto your condo that was your primary residence too long otherwise you will lose your exclusion.
2 votes Thank Flag Link Sun Jun 29, 2008
Something to remember about rental property is that the income you receive is likely to be discounted by lenders by 25% to cover overhead. That means if you collect $1k monthly you get credit for $750 and if your PITI mortgage payment is $1k you have to add the difference ($250) to your monthly liabilities when calculating your debt service coverage ratios. It's important to know whether you can support any potential added debt load and still qualify for the mortgage you have likely been pre-approved for.

Use my free online prequal calculator and be certain to add your motthly debt service liabilities for a clearer estimate or call me if you would like me to calculate it for you.

http://www.gregzaccagni.com/RequiredIncomeCalc
Web Reference: http://www.GregZaccagni.com
1 vote Thank Flag Link Fri Jun 27, 2008
Ask your CPA about the great tax benefits to owning rental property. Do a criminal background check and credit check of your tenant choices. Use lease provisions that give you extra protection. Do not allow smoking or pets. Carefully select the right tenant while obeying all Fair Housing Laws. Why take a loss when you can make a profit in the long run? Consider it the first step in building your real estate investment empire.
Web Reference: http://www.realtybob.com
1 vote Thank Flag Link Fri Jun 27, 2008
Ming,

You are faced with the same tough decision that a lot of sellers are facing in today's market. You purchased a great condo that has declined in value and you are unable to sell it without losing money. You say you are going to buy a single family home now that you are getting married and are trying to decide whether to sell or rent, but have you considered just staying in your condo? If you stay in your condo you may miss out on the opportunity to purchase your first starter home in what is probably one of the best buyers markets in recent years, but you won't take a loss on your existing condo. As Jim pointed out in his answer, are you ready to take on the responsibilities of being a landlord?

You should weigh all the factors of what your monthly payments will be for your new home plus any costs you can't cover in your condo with the rent to decide if you can afford to take on that much of a monthly expense. You should also be prepared for the possibility that your condo won't always be rented and that you have to cover those monthly costs while looking for new tenants. You should also set aside money to repair the condo after your renters leave if you end up with a bad tenant.

There are a lot of things to consider. Good luck, and be happy with what ever decision you make and don't look back.

Scott Sullivan
Prudential Network Realty
Orange Park, FL
C: (904) 327-5676
O: (904) 269-1716
scott.sullivan@prudentialnetworkrealty.com
1 vote Thank Flag Link Thu Jun 26, 2008
It sounds as if you have all ready weighed the pluses and minuses.
Have you considered the costs involved with and are ready to be a landlord? Possible eviction, damage to your condo, vacancies. All of these add up very fast.
If you are just getting married and starting a new life, I would counsel you to sell it and reduce your stress, go have some fun! And don't look back!

Besides, how long will it take for your condo to appreciate back to a value you are satisfied with? 1 year, 2years, maybe even four years, no one can say for certain.

Good luck,
Jim
1 vote Thank Flag Link Thu Jun 26, 2008
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