Should I rent or sell my Arlington condo?
Are you debating whether to sell or rent out your Arlington condo? If you are in an awesome financial position where you don’t have to sell to buy, it’s a common question that many condo owners have. Unfortunately, there is no blanket answer. It really depends on your specific situation and goals. But don’t worry, I’m here to help! Here are a few questions to ask yourself before deciding whether to sell or rent your Arlington condo:
Do you even want to be a landlord?
For some people, owning real estate is part of a larger wealth accumulation strategy and this property could be the first of many rental properties for you. It allows you to get your feet wet as a landlord with a property that you are already very familiar with. However, the flip side is that your tenant will be the one calling you when their toilet leaks or the AC isn’t working. And that call could come while you are on vacation or busy at work. You could potentially hire a property manager to manage the property for you (which I believe is a great idea), but this will eat into your profits. Unless you bought your condo a long time ago, the property may not cashflow if you factor in the expense of a property manager.
Will the property cashflow or appreciate if you hold onto it?
If you want to be a landlord, you need to take a hard look at the financials of the property from an investment perspective. The biggest mistake that new landlords make is failing to account for all of the costs associated with having a rental property. Unfortunately, these unaccounted expenses will eat away at your profit. After calculating the numbers for your specific property, will you be cashflow positive, neutral, or negative each month?
Next, you should determine if the area is appreciating, flat, or depreciating. In some cases, in particular if it is a popular area, such as Clarendon, the potential appreciation of the property may be worth being cashflow negative for a few years (if you can afford it). But notice how I said potential. Appreciation is not guaranteed and you must also be comfortable with any risks of the property depreciating over time. If you don’t want to deal with the headaches of managing a property or the uncertainty of future home values, then the choice is easy – sell your condo now!
How much in capital gains will you have to pay if you sell?
If you’ve lived in your condo for awhile and have a significant amount of capital gains, it may be worth it to keep it as a rental to avoid paying taxes immediately on the gain. Once the property turns into a rental, you could do a 1031 exchange in the future to avoid paying capital gains. If you haven’t owned your property for very long or if you are under the capital gains threshold, then the good news is that when you sell, you won’t need to pay any capital gains. (Note: I’m not an accountant, so talk to your accountant for your specific situation.)
If you sell, what will you do with the proceeds?
Are there repairs on your new house that you need to do immediately? Or will the money help pay off a significant portion of the mortgage on your new home? If you need the money right away, then sell your condo to get the equity out. If you aren’t sure what you are going to do with the money, or you know it will just be sitting in a savings account making no interest, then it may make sense to keep the property. If you are in an appreciating neighborhood, your equity may be growing at a higher percentage than if it were in your bank account!
I hope these questions will help you decide whether to rent or sell your condo. Again, there isn’t a typical answer since it depends on your goals, financial situation, and when you bought your condo.