Ask Adam: Rent or Sell?

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This regularly-scheduled sponsored Q&A column is written by Adam Gallegos of Arlington-based real estate firm Arbour Realty, voted one of Arlington Magazine’s Best Realtors of 2013. Please submit follow-up questions in the comments section or via email.

Question: I own a 1 bedroom condo near the Courthouse Metro in a full service building. In the near future I will be moving into my fiance’s townhome, and originally I thought I would rent my condo for a couple of years. I refinanced last year and can rent it at a rate that will cover my mortgage and condo fees. We plan to sell both our properties within 3 years (so I can avoid capital gains tax) and use the equity to purchase a single family house, most likely in Arlington.

However, with the market dynamics currently in play, I am wondering if it is really worth the time, risk and possible expenses to become a landlord for such a short time. I have about $70k in equity in the condo and am thinking it might be better to sell it now, and invest that money to have it on hand for our next house. Do you have any advice in helping to make this decision?

If you were considering whether to rent out the condo indefinitely, I would strongly urge you to hold onto it because I think that a condo near Courthouse Metro could be a great addition to your investment portfolio.

If you are only keeping the property for a short period of time, it is important to take a look at all the costs to evaluate whether they outweigh the benefits of holding on to the condo.  There is an iPad/iPhone app I really like called Property Evaluator that can help with this analysis. You can also create a spreadsheet, but be sure to add up the following:

  • Interest payments
  • Projected maintenance and improvements to the condo
  • Estimated number of days the property will be vacant and the cost of carrying the property during that time
  • Insurance
  • Condo fees and estimated increases
  • County, state and federal taxes
  • Opportunity cost that the $70k you have in equity and the future principal payments could be making if invested elsewhere
  • Property management fees (if applicable)
  • Advertising costs (if applicable)

The next step is to compare these costs to the monthly rent you will earn and the potential appreciation you will gain. It sounds like you have already done your homework to figure out how much your condo can earn per month in rent. You’ll also need to estimate the amount of appreciation your condo will see over the next three years. Please feel free to contact me via email if you would like to discuss the estimated appreciation of your specific home.

With this data, you should be able to decide whether keeping the condo and renting it will provide enough financial benefit to outweigh the costs. Like you mentioned, it is also important to evaluate the risks and time commitment.

If you decide to rent the condo, I recommend re-evaluating the market and your costs after the first year.

The views and opinions expressed in the column are those of the author and do not necessarily reflect the views of ARLnow.com.