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Sell our condo to buy a new house, or keep it and use as rental?
Old 01-11-2019, 07:58 PM   #1
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Sell our condo to buy a new house, or keep it and use as rental?

Would love your feedback and input!

We are thinking of selling our 2/2 condo to purchase a new-construction, single-family home that we fell in love with and would be perfect for our needs.

The condo has been our home for almost 10 years, but we are really tired of the condo "lifestyle" and would love something more spacious, much less noisy and without the hassle of an association, etc. I am also self-employed, work from home, and value privacy and peace and quiet above all else. There are months were new, short-term tenants move in close to our unit and make our life an absolute nightmare. There is also ALWAYS somebody renovating something next door, to the point where the noise becomes unbearable and I can not even hear my clients on the phone. I have been forced to leave my own home many, many times due to the noise.

The condo is on the beach, in a very desirable in South FL (near the Aventura / Hollywood / Hallandale area, on Ocean Drive). It is a corner-unit, and in very good shape. Unfortunately, the market is not ideal at the moment. Way too many similar properties out there. But the fact remains that this is still a nice, extremely popular area (which is part of the problem... honestly, we are tired of the tourists and everybody else being on vacation except for us...).

The condo is paid in full. No mortgage. Total cost to live here is about $17K / year. This includes property taxes, HOA's ($650/month), insurance and electric. In 10 years, we have only had one single special assessment of $1K this past year. But our building reserves went from almost 2 million to about $350K this past year due to structural renovations, etc., so I anticipate additional special assessments down the road.

We are sick of the glorified apartment life where tenants seem to have more privileges than owners. So we started looking around and we immediately found a new development in the area that we loved. It's perfect for our needs in (almost) every way. 2-story detached home, new construction, gated community, with gym and lots of green, literally 5 minutes from family and work, energy-efficient construction up to the latest hurricane code (extremely important in our area), with impact windows throughout, 10-year warranty, lots of custom options, etc, etc.

After running the numbers, it would cost essentially the same to live in this house than in the condo. But one can truly not compare to the other.

We are both 40, have zero debt and about $450K between cash savings and investments, etc. The condo is by far our largest expense. We live well below our means, usually on one pay-check, and we try to save/invest the other one. No kids.

The home would take about 8 months to complete, after an initial deposit. Half of the development is already completed and sold out. I walked the area, asked around, and folks who have been living there for 1+ year are very happy overall.

So, here is where I would love your input:

- We could sell our condo for about $400K. Many similar units in the same building are on the market as well. Average asking price is $440 to $480K, but they are simply not moving, period. So $400K is a more realistic figure. Of course, the market may come crashing down by the time we are ready. So far, only units that are under-priced are moving. This concerns me.

- The home we like is about $480K. We have until the end of the month to also get a once-a-year-only bonus of $30K in upgrades. Essentially, the developer lets you choose up to $30K in upgrades at no additional cost. I asked around, and this is not a BS promo. It really happens only once a year. We think $30K would cover most of the upgrades we could possibly need or want.

- So, all in all, even after selling the condo we still would need to put down an extra $100K or so.

- Do we sell the condo? Do we wait, put $100K down, then mortgage about $400K, then move from one property to the other at our own pace, THEN, once we are finally moved in, we sell the condo and pay the mortgage off? Or do we get the mortgage and KEEP the condo as a rental?

- The condo could, in the best-case-scenario, generate about $30K+/year in rental income. So our profit after expenses and taxes would be about $10K/year. But I really do not wish to be a landlord nor deal with tenants.

- More importantly, I really do not want a mortgage, period. I have never have debt in my life. The mere idea of signing such a document shakes me to the core.

Still, perhaps a change in mindset would make sense. We could have the house we love, while still keep the condo and generate a passive income stream, hopefully without too many headaches, then use some of our dividend and investment income to pay the mortgage of the new home. Then, once the market is on fire again, we sell the condo at a decent price.

But who am I kidding? I come from a different country and culture. We buy things we can afford. If you can not pay cash for something, you do not buy it, period. I am also, like most of you, the epitome of frugality, and a savings-addict. The idea of having two properties, one still not paid for, keeps me awake at night.

What would you do?

Your thoughts and experience are truly appreciated.
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Old 01-11-2019, 08:11 PM   #2
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We are sick of the glorified apartment life where tenants seem to have more privileges than owners. .
This comment makes me think your condo complex has to many long term rentals (over about 20%) and/or is being used for Airbnb type short term rentals. Or both.

Can you clear that up?
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Old 01-11-2019, 08:17 PM   #3
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The home would take about 8 months to complete, after an initial deposit. Half of the development is already completed and sold out.
I think a SFH is a good way to go for your wants and needs, and issues. I would just caution you on the timeframe, having myself bought "new" in S.FLA: Expect the 8 months to be 18. If that's ok, go for it. It sounds like you wouldn't be the first homes in the new dev, so maybe shorter, but always double the developers estimates and plan accordingly.
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Old 01-11-2019, 08:21 PM   #4
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Look at vacant units and try to find out what you might rent the unit for per month, then subtract all the taxes and fees/Insurance to get your Net monthly income. How much will you actually make, then subtract the months that the unit is vacant AND the likely cost of repairs between tenants. Taxes, utilities, insurance, etc etc that you will pay for every month the place is vacant. Getting a Good tenant that actually pays the rent and does not destroy your place is a crap shoot. Bottom line is how much time to you have to deal with being a landlord. We use a property management company to deal with finding tenants and Screening, background checks, and credit checks collecting rent etc. Cost 7% but worth it. Their Odds of finding a family that can and will actually pay the rent are much better than yours. Try to determine your estimated "Net" income and then get an estimate of what you might get if you sold it and invested the profits of the sale and the potential return and compare. I would NOT recommend using it as a "vacation" rental where different people come and go a week here and a week there. They have parties and trash the place. Good luck with what ever you decide to do. Just my 2 Cents worth. Bill
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Old 01-11-2019, 08:59 PM   #5
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That is exactly what I did. I bought a SFH in a +55 park, and turned my condo into a rental. I did this for a number of years. Fortunately, between my investments and DW's sale of her house, we have no mortgage.
There is a thing called a "bridge loan" which will help you buy your new home while your condo is for sale.
My one concern was about you moving to a 2 story home. However, since you are in your 40's it should not be a problem. If you were in your 70's I would have advised against it.
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Old 01-11-2019, 10:00 PM   #6
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You say that only under priced units are moving. Maybe they are selling under the price the seller wants, but if that's the price that is moving them, it is the REAL price. At the right price (where seller and buyer agree on value), the unit will sell within a week or two. A corner unit should sell at a premium.
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Old 01-11-2019, 10:10 PM   #7
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This comment makes me think your condo complex has to many long term rentals (over about 20%) and/or is being used for Airbnb type short term rentals. Or both.

Can you clear that up?
Our building requires 30-day minimum rentals, which we like. Nothing shorter than this is allowed, but in reality this is really a mess. Airbnb type short-term rentals are a fact. I see this every day. A neighbor placed a hidden surveillance camera in her front door and was horrified at what it recorded after a few days... You can clearly see prostitutes and a revolving door of all kinds of characters entering and leaving the unit next door... A simple Google search reveals that the building is a magnet for single-day rentals. Many owners are out of state and also lend their units to their second-cousin's third-wife's nephew's best friend, so they file this under "family" and then all bets are off. We tried to control this via a new finger-print access system, but when there is a will there is a way...

We have seen a dramatic deterioration in the quality of folks living in the building in the last few years. Only 40 or so of owners are actually full-time residents like we are (out of 330+ units). This used to be a great community. Now it is a glorified hotel.

Thank you all for the replies so far!
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Old 01-11-2019, 10:20 PM   #8
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You say that only under priced units are moving. Maybe they are selling under the price the seller wants, but if that's the price that is moving them, it is the REAL price. At the right price (where seller and buyer agree on value), the unit will sell within a week or two. A corner unit should sell at a premium.
You are 100% correct, of course. It's just frustrating to realize that prices have not gone anywhere in the last 10+ years. Our corner unit faces Ocean Drive and the intra-coastal. We actually really enjoy our view and prefer it to an ocean view. Sunsets are lovely. So even though we are *on* the beach, we are on the opposite side of the building. Realtors make a big deal about this... But the unit is far larger than a standard 2/2. It is about 1500 sq/f., plus a wrap-around balcony, vs about 1000 sq/f and a small balcony for a standard 2/2. We truly love the inside of our home. The outside is the problem.
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Old 01-11-2019, 11:25 PM   #9
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The easiest thing, is keep the condo until your house is ready to move in. Means you will need a mortgage for it or bridge loan, but it also means that you won't be left homeless having sold the condo and the builder goes bankrupt/slows down.

Are you sure you love the house that is not built yet? It's worth 2nd and 3rd looks to be sure along with looking at others, then if you still love it, it is the one.

Whatever you do, do not be a landlord in that building, sounds like a disaster waiting to happen, and you don't really want the hassle.
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Old 01-12-2019, 01:16 AM   #10
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Some questions:
1. What is the best use of your time (making money)? On the job, or being a landlord?
2. Take a guess: where do you THINK property values are going over the next year? Up or down?
3. You are already concerned about being a landlord, should you trust your "gut"?.

A condo with $650 month HOA fees, plus taxes, plus utilities & insurance sitting vacant is an alligator feasting on your savings. To keep good tenants, you will either work hard personally, or pay large fees (40%+?) to have professional management. Do you really want to work that hard? (30+ year landlord here).

The house sounds nice and it appears that you are doing your "home"work.

As to question #2. If the stock market stays down for a few months/years, it may affect short term values on your condo. Why not sell now, before things get worse (if they do)? Besides, by selling now, you keep your tax free capital gains (for personal use of home). Turn it into a rental, and the taxes will be more complicated and expensive.
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Old 01-12-2019, 05:41 AM   #11
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You can clearly see prostitutes and a revolving door of all kinds of characters entering and leaving the unit next door... A simple Google search reveals that the building is a magnet for single-day rentals. Many owners are out of state and also lend their units to their second-cousin's third-wife's nephew's best friend, so they file this under "family" and then all bets are off. We tried to control this via a new finger-print access system, but when there is a will there is a way...

We have seen a dramatic deterioration in the quality of folks living in the building in the last few years. Only 40 or so of owners are actually full-time residents like we are (out of 330+ units). This used to be a great community. Now it is a glorified hotel.
Sell. Get out before it gets even worse.
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Old 01-12-2019, 06:37 AM   #12
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Some questions:
1. What is the best use of your time (making money)? On the job, or being a landlord?
2. Take a guess: where do you THINK property values are going over the next year? Up or down?
3. You are already concerned about being a landlord, should you trust your "gut"?.
I definitely do *not* wish to be a landlord. The only reason why I am even considering a rental is because I see the crazy-high figures folks are asking (anywhere from $2800 to $4000 / month). It seems the building is also always full, and my goal is to always increase our passive income stream. But the headaches and potential nightmare-scenarios are too many, specially for somebody like me, who has zero experience dealing with tenants, and who is not handy at all.


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The easiest thing, is keep the condo until your house is ready to move in. Means you will need a mortgage for it or bridge loan, but it also means that you won't be left homeless having sold the condo and the builder goes bankrupt/slows down.

Are you sure you love the house that is not built yet? It's worth 2nd and 3rd looks to be sure along with looking at others, then if you still love it, it is the one.
As much as I panic about the idea of a mortgage, the above would be, by far, the easiest approach. We would save even more aggressively than we do now, so as to make the largest down-payment possible at the moment of closing, we could then move in once the new home is fully ready, take our time moving things out from the condo, and furnish and tweak a few things here and there in the new place. For example, there is one wall I would like to remove to make the second bedroom significantly larger. The developer said no problem, but we need to do this ourselves after the home is ready, because they are not allowed to deviate from the existing floor-plan due to city permits, etc. So, even after the home is ready, I anticipate a month or two worth of small changes, tweaks and upgrades we would do on our own. We would be living in the condo in the meantime, and that would be when we would put it on the market. If it sells quickly, we would then move into the new home and if we have to live with a little construction mess for a few weeks, so be it, but at least I would pay off the mortgage and sleep better at night.

I have been at the model of the property 5 times now. We are going again today. I spent time imagining where this and that would go. I walked the neighborhood during the day and in the evening. I asked folks living there for their opinions. A few had issues (one lady needed her floors to be completely re-done), but the developer took care of them. I assume trial-and-error played a role at the beginning of the project.

The company is Pulte Homes. I also saw quite a few nasty posts on their facebook page from angry owners (from other states, not ours) with different types of issues, but such is the nature of social media. You only hear from the unhappy costumers. The company has decades of experience, so I'm sure not everything went always smoothly.

For the tax experts: are there any ramifications if we keep the condo, get a mortgage, then move in to the new home, THEN sell the condo after a month or two? Would I have to pay taxes on the sale of the condo?

Tank you all for your input!
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Old 01-12-2019, 09:11 AM   #13
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- We could sell our condo for about $400K.

In 10 years, we have only had one single special assessment of $1K this past year. But our building reserves went from almost 2 million to about $350K this past year due to structural renovations, etc., so I anticipate additional special assessments down the road.

- The condo could, in the best-case-scenario, generate about $30K+/year in rental income. So our profit after expenses and taxes would be about $10K/year. But I really do not wish to be a landlord nor deal with tenants.
$10k on a $400k investment is a 2.5% return and to earn that you have to be a landlord, which you don't want to do. That 2.5% return is also before any special assessments and will probably be lower than the interest rate you'll be paying on the mortgage on the new house.

I don't see any upside in keeping the condo.
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Old 01-12-2019, 09:16 AM   #14
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$10k on a $400k investment is a 2.5% return and to earn that you have to be a landlord, which you don't want to do. That 2.5% return is also before any special assessments and will probably be lower than the interest rate you'll be paying on the mortgage on the new house.

I don't see any upside in keeping the condo.
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Old 01-12-2019, 09:18 AM   #15
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Have you asked current residents how long it actually took to build their homes versus the initial estimate? Multiply by 3 in Florida and you will be close! Okay, 3x might be a little much, but 2x is very realistic.
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Old 01-12-2019, 09:32 AM   #16
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Based on your posts and your description of your current condo in your shoes here's what I personally would do.

Sign for the new place and get a mortgage. Put the place you live in up for sale NOW nothing you said leads me to think it will even hold its present value for a year to 18 months. Clear your clutter and when you place does sell move into a rental if the new one isn't done. I wouldn't even want to guess about the potential downside hit in price the unit you are living in now is exposed to.

Now you seem unsure of what your home will actually sell for, is this a deal breaker as far as moving? Then you need to actually sell your present unit to see how much you get for it, move to a rental and then start the process of building.

You say you can see hookers and other undesirables coming and going..get out now.
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Old 01-12-2019, 09:49 AM   #17
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But who am I kidding? I come from a different country and culture. We buy things we can afford. If you can not pay cash for something, you do not buy it, period. I am also, like most of you, the epitome of frugality, and a savings-addict. The idea of having two properties, one still not paid for, keeps me awake at night.

What would you do?
I think you answered your question right here. You really do not care what I would do, as you realize what is important is what is likely to be best for you, in your situation with your needs and constraints. And of course, this involves an as yet unknown future, so I guess the real question is what do you think with who you are and what you perceive about conditions is likely to be best for your needs and desires?


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Old 01-12-2019, 10:37 AM   #18
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Have you asked current residents how long it actually took to build their homes versus the initial estimate? Multiply by 3 in Florida and you will be close! Okay, 3x might be a little much, but 2x is very realistic.
Thank you all for the input. Really concerned about the above. We are going back for another look-around today and I will definitely ask current owners about this. I can definitely see it happening if a hurricane hits and construction is delayed for months. Wonder who is responsible for any damage in that case?
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Old 01-12-2019, 11:08 AM   #19
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...
.... For example, there is one wall I would like to remove to make the second bedroom significantly larger. The developer said no problem, but we need to do this ourselves after the home is ready, because they are not allowed to deviate from the existing floor-plan due to city permits, etc...
This is probably a lie, what is really happening is the builder is too lazy which is too bad as your property taxes will possibly be higher than they should be. In general a 3 bedroom house is taxed higher than 2 bedroom all things being considered, and able to be sold for more to most people.


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...
For the tax experts: are there any ramifications if we keep the condo, get a mortgage, then move in to the new home, THEN sell the condo after a month or two? Would I have to pay taxes on the sale of the condo?

.
Not a tax expert but there are no extra taxes as you are selling the condo which was your primary home, and a bunch of months means nothing. If you rent it out, then the clock starts ticking on some rules but only on the gain after moving out.
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Old 01-12-2019, 11:11 AM   #20
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I would sell now. The downgrade in occupants is distressing. And the low proportion of full time owners. And the probable (?) special asessments. As a buyer I would look at the HOA finances closely. And the reserves direction would be concerning.

I'm no fan of the national builders. And there isn't much they could do to make me comfortable. One thing the homebuilders do is load up the model. They all do and that's fine. If a buyer wanted to look at the upgraded windows they can walk over and look at them. But all the bling can blind you to what a "regular" home is like & lives like. Look at the back patio. Models will have really nice, expanded areas. But the standard home is 8x10 broomed concrete. No grass, no lighting, no shrubs, etc.The nationals ask (and get) donations from the trades on model homes.We just declined one this week. Beware the Disneyland effect
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