Rental apartment - sell or re-tenant?

[namenloseblonde]

Greetings Bogleheads! I'm looking for some advice from any current/former landlords - here's the situation:

I own a 1BR co-op apartment in western Queens, which I purchased (as a single woman) in 2002 for $90,000. I got married in 2010 and my husband and I lived there until 2016. During that time, I invested $50,000 in a much-needed renovation. When we moved to the suburbs, I did a cash-out refi to obtain some of the cash we needed for the downpayment on our house, so I am 9 years into a 30-yr mortgage on $150,000 at 3.5%. The unit is currently worth around $400,000 per my broker (most recent comps in the building went for $375-385K, also renovated but slightly smaller units with somewhat lower quality finishes; neighborhood comps range from $375-425K). This is down a bit from a couple of years ago, before high mortgage rates started weighing on prices, but appreciation has definitely slowed since I bought - the value more than doubled in the first five years I owned and then appreciation stabilized. In 2016, it was probably worth $315-325K.

Initially, I kept the unit as a rental because we thought we might want to move back to the city someday. Almost 9 years later, we are certain we do not want to go back - in fact, we're considering moving away from the NYC metro area entirely - so it makes sense to sell. However, I'm having trouble pulling the trigger on the sale - fear of missing out, maybe. I've had no trouble finding good tenants, and the unit is rented for $2,500/month (cash flow around $1,000/m), so there is a financial benefit to keeping it. I suspect the money could be put to better use elsewhere, though.

My current tenant plans to leave at the end of his lease (July 31), so I'll need to find a new tenant or list it for sale soon. Keeping emotion out of it, what would you do given these (rounded) numbers:

Purchase price: $90,000
Current Value: $400,000
Cost basis: $165,000 (as calculated for tax purposes)
Accumulated depreciation: $45,000
Capital gains tax rate: 15%
Est. selling fees: $25-30K (incl. broker fee and various co-op exit costs)
Gross rental income: $30,000/yr
Net rental income: $12,000/yr (rent minus mortgage, maintenance fee and insurance; I have never incurred any significant re-tenanting costs)
Mortgage: $150,000 @ 3.5%; $695/m payment with $120K still owing

Thanks in advance for your advice!

[bombcar]

This is a classic investment question, and you need to know the cap rate:

https://www.mynd.co/cap-rate-calculator

You appear to have a cap rate of 3% which isn't great.

Cash flow is positive - the "main" advantage you have is you're still leveraged, you're making 12,000 a year on an "investment" of 240,000 (take value of the unit, minus 10% to sell it, minus the loan) - which is 5%.

That's not amazing compared to maintenance free, tenant free money market funds.

Keeping this rental is a personal decision. The financial one is to sell it.

Or, if you really want to keep that appreciation without capital gains, you can move back in for a time, or you can 1031 exchange it out to some new area (hopefully one with better cap rates).

If you have no problem renting the unit, you're not charging enough.

If you are moving out of New York State, I would sell, sell, sell so fast, sell it with the tenant in if necessary. Because owning real estate out of state is annoying, even if all it is is the extra tax nexus and form.

[exodusNH]

Greetings Bogleheads! I'm looking for some advice from any current/former landlords - here's the situation:

I own a 1BR co-op apartment in western Queens, which I purchased (as a single woman) in 2002 for $90,000. I got married in 2010 and my husband and I lived there until 2016. During that time, I invested $50,000 in a much-needed renovation. When we moved to the suburbs, I did a cash-out refi to obtain some of the cash we needed for the downpayment on our house, so I am 9 years into a 30-yr mortgage on $150,000 at 3.5%. The unit is currently worth around $400,000 per my broker (most recent comps in the building went for $375-385K, also renovated but slightly smaller units with somewhat lower quality finishes; neighborhood comps range from $375-425K). This is down a bit from a couple of years ago, before high mortgage rates started weighing on prices, but appreciation has definitely slowed since I bought - the value more than doubled in the first five years I owned and then appreciation stabilized. In 2016, it was probably worth $315-325K.

Initially, I kept the unit as a rental because we thought we might want to move back to the city someday. Almost 9 years later, we are certain we do not want to go back - in fact, we're considering moving away from the NYC metro area entirely - so it makes sense to sell. However, I'm having trouble pulling the trigger on the sale - fear of missing out, maybe. I've had no trouble finding good tenants, and the unit is rented for $2,500/month (cash flow around $1,000/m), so there is a financial benefit to keeping it. I suspect the money could be put to better use elsewhere, though.

My current tenant plans to leave at the end of his lease (July 31), so I'll need to find a new tenant or list it for sale soon. Keeping emotion out of it, what would you do given these (rounded) numbers:

Purchase price: $90,000
Current Value: $400,000
Cost basis: $165,000 (as calculated for tax purposes)
Accumulated depreciation: $45,000
Capital gains tax rate: 15%
Est. selling fees: $25-30K (incl. broker fee and various co-op exit costs)
Gross rental income: $30,000/yr
Net rental income: $12,000/yr (rent minus mortgage, maintenance fee and insurance; I have never incurred any significant re-tenanting costs)
Mortgage: $150,000 @ 3.5%; $695/m payment with $120K still owing

Thanks in advance for your advice!

Sell. $1000/mo isn't all that much with what you've got tied up in there.

If real estate is going to appreciate (FOMO), the stock market is probably doing well, too. You can invest the rest. In a 60/40 portfolio, you'd likely earn about the same with none of the headaches of dealing with tenants.

It only takes one bad one to make your life miserable, especially if you're going to leave the area. If you hire someone to manage the property, you're going to be earning even less.

[namenloseblonde]

Keeping this rental is a personal decision. The financial one is to sell it.

Or, if you really want to keep that appreciation without capital gains, you can move back in for a time, or you can 1031 exchange it out to some new area (hopefully one with better cap rates).

If you have no problem renting the unit, you're not charging enough.

Thanks - this is what I needed to hear. I have looked into 1031, but since we're not entirely sure where we'll go when we leave NY, I don't want to exchange into a property in a location that isn't where we ultimately end up as I don't want to be a long-distance landlord. No way we're moving back in, unless I want a divorce . It's probably better to just bite the bullet on the cap gains taxes and move on.

ETA: I might be able to push the rent up slightly, but not enough to move the needle on cap rate. Rents have stagnated a bit since my tenant moved in in 2023, so I think an additional $100-200/m would be the max I could get this year.

[Sandtrap]

Greetings Bogleheads! I'm looking for some advice from any current/former landlords - here's the situation:

I own a 1BR co-op apartment in western Queens, which I purchased (as a single woman) in 2002 for $90,000. I got married in 2010 and my husband and I lived there until 2016. During that time, I invested $50,000 in a much-needed renovation. When we moved to the suburbs, I did a cash-out refi to obtain some of the cash we needed for the downpayment on our house, so I am 9 years into a 30-yr mortgage on $150,000 at 3.5%. The unit is currently worth around $400,000 per my broker (most recent comps in the building went for $375-385K, also renovated but slightly smaller units with somewhat lower quality finishes; neighborhood comps range from $375-425K). This is down a bit from a couple of years ago, before high mortgage rates started weighing on prices, but appreciation has definitely slowed since I bought - the value more than doubled in the first five years I owned and then appreciation stabilized. In 2016, it was probably worth $315-325K.

Initially, I kept the unit as a rental because we thought we might want to move back to the city someday. Almost 9 years later, we are certain we do not want to go back - in fact, we're considering moving away from the NYC metro area entirely - so it makes sense to sell. However, I'm having trouble pulling the trigger on the sale - fear of missing out, maybe. I've had no trouble finding good tenants, and the unit is rented for $2,500/month (cash flow around $1,000/m), so there is a financial benefit to keeping it. I suspect the money could be put to better use elsewhere, though.

My current tenant plans to leave at the end of his lease (July 31), so I'll need to find a new tenant or list it for sale soon. Keeping emotion out of it, what would you do given these (rounded) numbers:

Purchase price: $90,000
Current Value: $400,000
Cost basis: $165,000 (as calculated for tax purposes)
Accumulated depreciation: $45,000
Capital gains tax rate: 15%
Est. selling fees: $25-30K (incl. broker fee and various co-op exit costs)
Gross rental income: $30,000/yr
Net rental income: $12,000/yr (rent minus mortgage, maintenance fee and insurance; I have never incurred any significant re-tenanting costs)
Mortgage: $150,000 @ 3.5%; $695/m payment with $120K still owing

Thanks in advance for your advice!

to op:
1
Your numbers are poor. Marginal ROI return on your investment and current value, vs net income that does not make it worthwhile.
2
It would be a strong consideration if you are not going to ever move back into that property to sell and put the proceeds toward your mortgage and paying down debt, etc.

j

[namenloseblonde]

Sell. $1000/mo isn't all that much with what you've got tied up in there.

If real estate is going to appreciate (FOMO), the stock market is probably doing well, too. You can invest the rest. In a 60/40 portfolio, you'd likely earn about the same with none of the headaches of dealing with tenants.

Yeah, the $1K a month cash flow felt like a lot back in 2016, but it is starting to seem not worth it now. The co-op has raised its fees on owner sublets since then, so even though the rental income has gone up, I haven't been able to increase my net very much. I think the FOMO comes from the possibility of an event that would make the neighborhood explode in popularity - for instance, a few years ago, Amazon nearly opened a facility just a couple of miles away that probably would have had a huge impact on RE prices in my neighborhood. Waiting around for that is like waiting to win the lottery, though - a waste of time, energy AND money!

[bombcar]

Real estate investment is much easier if you just pretend appreciation doesn't happen, or meets inflation.

Then you're thinking like a real estate investor, and appreciation is gravy.

[mchampse]

If you sold, you’d end up with:

$400k selling price
-$120k mortgage
-$30k selling fees
-$11.25k depreciation recapture
-$35.25k capital gains (assuming $165k cost basis is before depreciation)

Putting $203.5k in your pocket after all is said and done. $12k in free cash flow means that you are getting a 5.9% return on your money plus any appreciation.

With return to office, rents might go up. If you end up leaving the area, a tenant turn will be more expensive as you’ll need to find a leasing agent or fly back and forth.

It’s probably even money. If you don’t mind being a landlord, you’ll could consider a 1031 into a multi family which will get you more income.

[namenloseblonde]

It’s probably even money. If you don’t mind being a landlord, you’ll could consider a 1031 into a multi family which will get you more income.

Yeah, if I did a 1031 I would definitely look for a property that generated more income, or that I could use as a rental for a couple of years and then move into as my primary residence (just to avoid the cap gains taxes). But I do mind being a landlord, LOL. I mean, I don't hate it, but I don't have a great passion for it, and I probably would never have become one if I hadn't thought we might move back into my city place.

[bombcar]

But I do mind being a landlord

This is the key. Real estate isn't an investment so much as a way to "buy a job" - one that can pay really well, one that can be hell, and one that is open to those with few assets early on where others may not be.

Personally, I'd sell UNLESS you were certain you'd know where you're going within a year or two, and once there you 1031 into something local.

But that really only "nets" you the $35k from the cap gains. Is it worth it? Probably not.

[namenloseblonde]

But I do mind being a landlord

This is the key. Real estate isn't an investment so much as a way to "buy a job" - one that can pay really well, one that can be hell, and one that is open to those with few assets early on where others may not be.

Personally, I'd sell UNLESS you were certain you'd know where you're going within a year or two, and once there you 1031 into something local.

But that really only "nets" you the $35k from the cap gains. Is it worth it? Probably not.

Yeah, this actually came up a couple of years ago - we were kind of settled on moving to a specific city and had identified a potential 1031 candidate there, but the timing was off and we ended up scuttling the plan. A blessing in disguise as we're now considering moving to a different area for work/family reasons, but the idea is still sound - IF we find the right property AND make up our minds on the move. As you say, maybe not worth the stress to save $35K.

[mchampse]

IF we find the right property AND make up our minds on the move. As you say, maybe not worth the stress to save $35K.

Probably the right move. You would also save about $11k in depreciation recapture but that probably doesn’t change the math.

[av111]

Greetings Bogleheads! I'm looking for some advice from any current/former landlords - here's the situation:

I own a 1BR co-op apartment in western Queens, which I purchased (as a single woman) in 2002 for $90,000. I got married in 2010 and my husband and I lived there until 2016. During that time, I invested $50,000 in a much-needed renovation. When we moved to the suburbs, I did a cash-out refi to obtain some of the cash we needed for the downpayment on our house, so I am 9 years into a 30-yr mortgage on $150,000 at 3.5%. The unit is currently worth around $400,000 per my broker (most recent comps in the building went for $375-385K, also renovated but slightly smaller units with somewhat lower quality finishes; neighborhood comps range from $375-425K). This is down a bit from a couple of years ago, before high mortgage rates started weighing on prices, but appreciation has definitely slowed since I bought - the value more than doubled in the first five years I owned and then appreciation stabilized. In 2016, it was probably worth $315-325K.

Initially, I kept the unit as a rental because we thought we might want to move back to the city someday. Almost 9 years later, we are certain we do not want to go back - in fact, we're considering moving away from the NYC metro area entirely - so it makes sense to sell. However, I'm having trouble pulling the trigger on the sale - fear of missing out, maybe. I've had no trouble finding good tenants, and the unit is rented for $2,500/month (cash flow around $1,000/m), so there is a financial benefit to keeping it. I suspect the money could be put to better use elsewhere, though.

My current tenant plans to leave at the end of his lease (July 31), so I'll need to find a new tenant or list it for sale soon. Keeping emotion out of it, what would you do given these (rounded) numbers:

Purchase price: $90,000
Current Value: $400,000
Cost basis: $165,000 (as calculated for tax purposes)
Accumulated depreciation: $45,000
Capital gains tax rate: 15%
Est. selling fees: $25-30K (incl. broker fee and various co-op exit costs)
Gross rental income: $30,000/yr
Net rental income: $12,000/yr (rent minus mortgage, maintenance fee and insurance; I have never incurred any significant re-tenanting costs)
Mortgage: $150,000 @ 3.5%; $695/m payment with $120K still owing

Thanks in advance for your advice!

OP

This forum is generally not the right forum for advice on RE investments. It is hard to stomach 86k costs and taxes on CAP rate calculation when you have managed tenants all these years so well.

[Oddball]

If you sold, you’d end up with:

$400k selling price
-$120k mortgage
-$30k selling fees
-$11.25k depreciation recapture
-$35.25k capital gains (assuming $165k cost basis is before depreciation)

Putting $203.5k in your pocket after all is said and done. $12k in free cash flow means that you are getting a 5.9% return on your money plus any appreciation.

With return to office, rents might go up. If you end up leaving the area, a tenant turn will be more expensive as you’ll need to find a leasing agent or fly back and forth.

It’s probably even money. If you don’t mind being a landlord, you’ll could consider a 1031 into a multi family which will get you more income.

$12k cash flow
$3k (not sure the actual amount) mortgage paydown
2% appreciation on $400k is $8k

So your actual return is likely close to 11%. That seems pretty good. But, the bigger picture is if your long term financial outlook is fine without the rental, and you don't want to be a LL anymore, then selling would be a good choice for you.