To Sell, to Rent or to Stay in our Lowell condo (real estate market, rentals)

[the_axis]

Hi All,

My husband and I have been going around in circles, so I thought I'd reach out to get some outside opinions on this. We currently live in a 1-BR condo in downtown Lowell that we bought for a song back in 2011. We recently found out that we are expecting, and we are struggling with whether we want to sell, hold on to it and rent it out, or stay for the first year of our baby's life (only having one bedroom would make it tough to stay any longer than that).

Here's what we have now:
- Combined family income of about $220K/yr - we plan on going down to a single income for a year or so after the baby arrives, which would leave us with my husband's salary of $140K
- Current mortgage is a recently refinanced 15-year, and costs us $1100/month, plus $275 condo fee
- Based on what other rentals are going for in our building, we could expect to get about $1700+/month if we chose to rent it out

The houses we are looking for are in the $400-450K range and not fixer-uppers (not that that's a guarantee of an absence of unexpected costs of course). We could put down $90-100K out of savings if we chose to keep the condo, which according to calculators would be a $2700/month payment. The condo would basically pay for itself through renting it out. Caveat here: we have zero experience with what it's like to be a landlord, and having to deal with the maintenance of two properties would be quite a hassle. Also that would be a big chunk of our savings. And of course there would be times when we'd be carrying two mortgages with no rental income coming from the condo (good news is that other units in our building do not stay empty for long).

If we sold this year, we would expect to get $80-100K over what we paid in 2011, so our downpayment would be $150K or so and our savings wouldn't be as affected, plus we'd only be carrying one mortgage on a single income. At the same time we really believe that Lowell has nowhere to go but up (the transformation we've seen in the last 7 years alone has been incredible), and aren't sure that selling now is the best long-term strategy.

We could also postpone this decision to next year, but something tells me that moving now would be logistically easier than when you have a baby on your hands.

Any input is welcome!

[rethcir]

The market is going to drop in a year or two, Lowell probably won’t hold value like the premium real estate markets so I’d say move sooner rather than later.

[the_axis]

Thanks for the input!
If we kept the condo we'd hold on to it for longer than it would take to recover from any possible downturn in the next few years, so that's not a huge concern. As I said, we really believe in Lowell, and are sure that 10-15-20 years from now it's going to be a pretty amazing place to live. I know these boards tend to be pretty anti-Lowell, but having spent the last 7 years here I can't agree with those sentiments.

[sfosyd]

Personally, I’d keep it. Especially with the new tax plan, which really offers a lot of incentives to landlords. My hunch is, once you consider the tax advantages, it will more than pay for itself each month. Talk to your accountant.

[tysmith95]

Originally Posted by sfosyd

Personally, I’d keep it. Especially with the new tax plan, which really offers a lot of incentives to landlords. My hunch is, once you consider the tax advantages, it will more than pay for itself each month. Talk to your accountant.

What incentives? The only thing I can think of is the 20% deduction for pass through companies (which landlords would likely fall under).

For homeowners though they can only deduct a limited amount of the salt tax, but property taxes for landlords are fully deductible since it's considered a business expense. But that's not a change, the only thing that's changing is that homeownership is slightly less attractive then it was before. That probably dosn't affect someone buying a 400k condo as much as it would someone buying a million dollar house in the suburbs though.

[SalamanderSmile]

If you are planning on having more than one child- sell the condo and buy a house in a decent school district that you can swing on one salary. I say this because most families have their children about 3 years apart these days and you would only be back at work for a meaningless amount of time before you were pregnant and out another year. If you have the savings, why bother going back? daycare is expensive and a hassle. You will probably go back to work eventually but it may not be for 5-7 years, so make the house "one salary" where sending your kids to kindergarten or first grade there wouldn't kill you. If you can't afford a non-scary district on one salary you can always move to a better one when you do go back to work.

If you are planning on only one child I would refi the condo back to a 30 year for some breathing room while you go single income living there for a year. After that year you will know better what you want w/r/t work. If you decide to go back to work then rent out the condo and buy the house. The refi to a 30year gives you some passive income that will cushion you from unrented months and might even contribute to your daycare costs.

I am all for keeping the condo asset while owning the house but I have seen so many friends decide to NOT go back to work that it is not a recommendation I can just blankly give until you have the baby and know your path.

[sarahmccoy]

Congrats on the baby! You are absolutely correct that Lowell is definitely on the way up in terms of property values. I love to see another Pro-Lowell person! I went to college at UMASS and I work in Lowell and I love to see what has been going on in the city within the last 10 years. With that being said, now is a better time than ever to sell. We don't know if the market will take a turn in the future, we hope it doesn't, but I don't think it can stay this great for very much longer. Everyone above me has already given such great advice. To answer your question about whether to hold onto your condo or sell it, I think being a first time parent and a first time landlord not to mention buying a new home and moving... you are signing up for a lot of stress. Just my opinion as a mom

Also don't forget about capital gains taxes. You'd have to sell it within 5 years in order to not pay. Hope that helps!

[gf2020]

Originally Posted by rethcir

The market is going to drop in a year or two...

What evidence do you have of that? You have a crystal ball?

[tysmith95]

Who knows if the trend will continue, but I think overall there has been a trend amoung millenials to perfer cities moreso then their parents. 20 or 30 years ago you'd never have people making the inflation adjusted equivalent of 200k living in downtown Lowell.

[the_axis]

Just wanted to thank everyone for their input - these are all really great points.

SalamanderSmile, I wish we had the luxury of planning how many children we are going to have, but unfortunately getting to our first pregnancy was a 3-year long medical battle. That added layer of uncertainty doesn't help make any long-term plans!
I will however say that staying put is probably my least preferred option of the three:
- I have great credit and good income, so if we do decide to keep the condo, it's much better to apply for a second mortgage while I'm still employed full time.
- The way things are going, we might be priced out of the homes that we are looking at this year if we wait another year.
- And of course the logistics of moving with a baby seem much more complicated compared to when it's the two of us plus dog. That's not even taking into account what our future newborn will think of all the downtown night-time noises.

sarahmccoy, the hassle of dealing with tenants is honestly my biggest concern, even more than the financial side of things (and it would likely fall on me, as I'd be the stay at home person). I keep wondering if it's too shortsighted of an approach though... But you do make a good point about now being a good time to sell. We recently got the quarterly (?) letter from LowellLofts saying that downtown inventory is currently extremely low - I know that with all the development going on that will likely change in a few years, and it will likely be harder to sell older stock when you're going up against all these brand new condos.

Overall let me say once again just how helpful this all is. Yesterday we were leaning towards keeping, today leaning towards selling - there are definitely strong pros and cons for both, and we'll need more time and consideration to come to a final decision, but the input here has been great.