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Old Condo is Almost Rented

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As I've mentioned in the past, a surprise opportunity to relocate from Boston to Silicon Valley came across my doorstep. That left me with a decision to make about my condo. I had bought it in the summer of 2004 and have a fairly good mortgage rate on it. Unfortunately, if I were to sell it in today's market, it would probably be a $15,000 loss and that's if I were able to do it myself with no closing costs or anything (and we know there would be those). With the help of a real estate agent, I might lose up to $25,000.

I couldn't really stomach that loss and it would negate the opportunity I have out west. So the next option is to rent it out. The only problem? It's going to be cash flow negative because it's simply impossible for me to rent it near my mortgage. Doing the math, I will be losing about $550 a month with this development. That's a loss of $6600 a year. Ouch!

So why am I not upset? I'm trying to take the long-term view of this. If I keep this property for the full 30-year term of my fixed mortgage, I believe I will see a significant gain. In ten years from now, if history is an indication, my place will have appreciated nearly 63%. I'm simply using the historical average of 5% gains in real estate over the past 50 years or so (I wish I had remembered the source so I could cite it properly). That would make my $275K property worth $173K more. Isn't leverage wonderful? If I even see half of these gains, it will turn my negative situation into a positive one.

The other side of the coin is that over the time, I believe I will be able to raise the rent enough to be even or positive on a cash flow basis. It may take 7 years or more. So again at year 10, I will likely be positive in cash flow, have appreciation, and have paid off a fair amount of the loan (though a lot of it would be interest). There's just a good chance that I'm able to make this lemon into lemonade.

Last updated on December 14, 2006.

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Real Estate

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4 Responses to “Old Condo is Almost Rented”

  1. […] Since this goal is probably going to take more than a few years, I’ll eventually start to turn my cash flow negative property, into a positive (as rents rise) one. Read that post to understand how it will be positive cash flow in long term. If other people have any other forms of passive income that they feel I should try, please, please, let me know.            […]

  2. […] When we moved cross country for her promotion, we did talk a little bit about money. She offered to help with some of the expenses that occurred due to the move including the negative cash flow property that resulted. However, she was concerned in helping out so much that I’ll go out and buy a jet ski (her joking sarcasim), while I was somewhat concerned that she’d spend the extra money on designer purses (my joking sarcasim). […]

  3. […] My fiancee and I have very independent personalities.  When we met eachother, we each owned our own property.  We each have fairly successful careers, though I must admit that her’s is taking off a bit more than mine.  While we lived together in Boston, we split expenses more or less 50-50. When we moved cross country for her promotion, we did talk a little bit about money.  She offered to help with some of the expenses that occurred due to the move including the negative cash flow property that resulted.  However, she was concerned in helping out so much that I’ll go out and buy a jet ski (her joking sarcasim), while I was somewhat concerned that she’d spend the extra money on designer purses (my joking sarcasim). I was on board with continuing the 50-50 split until I realized exactly how much of a breadwinner she will be and how much less I’ll take home with the increased expenses.  I came up the idea using each of contributions of our total net income to figure out how we should divide up our expenses.  She brings home 57.6% of the income, so I suggested she paid 57.6% of the expenses.  After doing the math, she’ll still take home a good deal more than me each month.  After all, she makes more money, she should enjoy it. I’m curious as to what others would do.  Do you think this is a fair split?  This will become a moot point once we get married – or at least that’s the current plan.            […]

  4. […] My investment property – This may not actually be an “investment” for quite some time as I’ll lose $550 a month in the first year. However, I’m taking a long term view of things. […]

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