Sell or rent-out my Clairemont condo?

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Submitted by clairemontian on January 20, 2009 - 9:47pm

I've been reading this forum for a while and am now wondering what the Piggs would do in my shoes.

My wife and I currently live-in and own a 2/2 condo in a small complex in Clairemont. In a few months we’re planning to move downtown to rent and are trying to decide whether we should rent-out our current place or sell it.

We bought the condo in 2002 for $230k. It peaked in early 2005 when an identical unit sold for $365k. In December of 2008, an identical unit sold for $290k (in two weeks after it went on the market), a 20% drop from the peak. I was pleasantly surprised, as I thought it would have sold for around $260k based on the fact that the HPI has prices in Clairemont dropping about 29% since early 2005. In addition, the November 2008 HPI graph depicts the average Clairemont prices as level for the past 6 months. This data seems to indicate that the unit might be leveling off and might be close to its bottom value.

Despite all this, I was figuring that since 1) foreclosures are still high, 2) unemployment will continue to remain high if not increase, and 3) a wave of alt-a and negative interest loans are to reset this year, the unit has a good chance to fall below our purchase price of $230k within the next year or so. So I was planning on selling and was in the process of getting my ducks in a row.

Then just today, I see an identical unit as mine on the market in the mid $100ks. It’s a short sale!

Have I missed my opportunity to sell my unit in the mid $200s? What are the chances that the short sale will be bid-up to the mid $200s? Should I wait for it to sell and then try to sell my unit? Should I put it on the market at the same time as the short sale and hope that my unit sells before the bank gets an offer that they will accept. If it sells for $160k and then I put my unit on the market, what are the chances that I could sell my place for $230k? Please help, thanks.

Submitted by thebazman on January 20, 2009 - 10:01pm.

Are you talking about those brown-colored condos on Mt. Alifan? I saw that price and it seemed a little low considering all the amenities that were offered. I say low, considering that down the street at Village Square there are 2BR/2BA units with fewer amenities and less parking, selling for close to 200K! And those are older condos, too!

I'd be surprised if the lender lets them go for that low but some of the real estate agents and loan consultants here may disagree and say that the market still has more distance to fall lower, even in such a convenient area as Clairemont.

Probably there will be a lot of offers on that low-priced short sale.

Submitted by DWCAP on January 20, 2009 - 11:28pm.

What would your unit rent for? Can you cover all your costs (be conservative)? Seems this would be important for a "sell vs rent-out" comparison.

Submitted by sdduuuude on January 21, 2009 - 12:42am.

Have an unscrupulous friend put in a $250K offer on the short sale contingent upon this, that, and the other. Sell your place, then pull the offer.

Buying a short sale is a pain in the ass. If their realtor is telling buyuers "we have a $250K offer on it," and you price yours at $230, maybe they'll come running.

Not sure I'd have the guts to do this, and it's pretty underhanded, but I can't stop my brain from coming up with ideas like this.

Submitted by patientlywaiting on January 21, 2009 - 1:01am.

sdduuuude wrote:
Have an unscrupulous friend put in a $250K offer on the short sale contingent upon this, that, and the other. Sell your place, then pull the offer.

Buying a short sale is a pain in the ass. If their realtor is telling buyuers "we have a $250K offer on it," and you price yours at $230, maybe they'll come running.

Not sure I'd have the guts to do this, and it's pretty underhanded, but I can't stop my brain from coming up with ideas like this.

I don't see the big deal.

Such shenanigans have been going on for ages so that's nothing new.

You don't know if it'll work unless you try.

Submitted by FormerSanDiegan on January 21, 2009 - 9:20am.

I don't think we can offer a complete opinion without additional details as DWCAP suggested.

1. How much do these units rent for ?
2. How much do you owe ?
3. WHat is the interest rate on your loan ?
4. WHat are the HOA fees ?

Submitted by FormerSanDiegan on January 21, 2009 - 9:31am.

... But here's a stab:

Rents for 2BR/2Ba apartments in Clairemont can be between 1100 to 1400.

If you owe less than 180K at 6% or less (or owe less than 200K can refinance these days at rates around 5%), then you can start making a case for renting it out if you can get 1300 - 1400 in rent. You will be reasonably cash flow neutral at that point, accounting for tax benefits and principal paydown. BUt will have out-of-pocket expenses if you use a management company and for any repairs.

But again, this in only a guess without the actual numbers.

If you can rent these out at 1300-1400 and purchase for under 200K, it might start making sense for self-managed investors as long as investor owned rates are in the 6% or less range.

Submitted by clairemontian on January 21, 2009 - 12:06pm.

Appreciate the responses. Given our loan amount, a conservative rent value, hoa fees, prop management companyvfee, and taxes, we would come out ahead about $50 a month.

My question was more directed at whether I should sell given a short sale came on the market at about half as much as the last unit sold for two months ago. I’m thinking that even if the asking price was bid up 50%, it would still be below what we purchased our unit for. So the chances seem slim that after the short sale sells, we could sell our unit for the amount we paid for it. I guess we could try and put it on the market and see what happens...you never know. But since we’d be coming out on top if we were to rent it out, then it seems to make more sense to hold on to it.

Submitted by FormerSanDiegan on January 21, 2009 - 12:43pm.

clairemontian wrote:
Appreciate the responses. Given our loan amount, a conservative rent value, hoa fees, prop management companyvfee, and taxes, we would come out ahead about $50 a month.

Your $50 will likely get eaten by repairs. (I have a 2 BR rental house I've owned 7 years and we have averaged about $1200 per year in repairs, new appliances, etc)
Also, in your analysis, how did you account for the principal portion of your payment ?
If you have $50 after taxes, including principal portion of payment as part of the expenses, then you are in good shape renting it out. You'll essentially lock in future cash flow (I'm in the camp that anticipates inflation kicking in within the next 3 years) for reasonably minor out-of-pocket expenses.

Also, I would contact the listing agent for the short sale unit about potentially selling your unit and using them. They might give you the scoop on how much the short-sale unit will go for.

If you can rent it out and get the cash flow you describe, then I suspect you can sell it and still walk away with some cash. If not, I would sharpen your pencil on your analysis. Why not put it on the market and see ? Then rent it out if it doesn't sell.

Submitted by sdduuuude on January 21, 2009 - 1:44pm.

The first thing you have to understand is that the amount you spent on the property has absolutely no nothing to do with the decision to sell this property or not. Get it out of your mind. Pretend you paid $1,000,000 for it, or pretend it was a gift. Whatever works for you, do it.

If you don't understand why - read a finance book on "sunk cost" and internalize what it means.

OK. That's out of the way.

Base your decision on the future cash flows the property will bring you under two different conditions:

1) you sell it and pocket the cash.

2) you don't sell it and earn rent.

The analysis is now complicated by the fact that you don't know how much you can sell it for. I'd recommend finding the break-even sales price. That is - if you sell for less than x, you will make more money renting it out, and if it sells for more than x, it is better to sell it.

Then, check the comps and put it up for sale at a price that will bring in offers.

If none of the offers are > x, don't accept them.

Submitted by barnaby33 on January 21, 2009 - 1:58pm.

I'd say the fundamental question, and one that has been gone over here many times is, "are you prepared to be a land lord?" If you are looking at downtown condos, you are probably interested in a low maintenance life style. How does being a land lord square with that?
Josh

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