Sell or Rent?

Sell now and live in a rental. Sales of studios are up right now and chances are the market will be down in another 2.5 years.

if you have no appreciable cash assets, sell now. By appreciable, I'd ay 1-2 yrs liquidity. If you do have such assets, rent it out and take the tax deduction.

is it 2 of the last 5 years required? i was under the impression it was the last 2 years of residency to qualify for the 250/500 tax free gain.

Its 2 of immediately preceding 5 years.

Apartment Value = $375,000
Revenue for Renting Per Annum = $28,800
Expenses (CC and Mortgage) = $21,600
Cash After Expenses = $7,200

If you sell it you walk away with = $190,000

You could sell the apartment and invest in tax free bonds with a 6% yield and make $11,400 per year.

Or you could deal with the pain in the ass of renting this place out, finding tenants, getting board approval, paying for periodic repairs and hope to make $7,200 a year.

Rise in value of the apartment is tough to bank on as studios are starter homes and most sensitive to the gyrations of the real estate market.

Numbers look to me like they are screaming to sell now.

Where in the world can you get a 6% yield on a municipal bond (tax free)

Fair enough call it the ten year treasury at 5.08% makes the yield $9,652.

Point remains the same which is $7,200 a year renting should be measured against other investment options.

But that's not tax free. Municipals are more like 4%. So we are talking like 7,800 a year which is very close to 7,200 a year. Keep in mind there are also tax advantages to owning as well as an appreciating asset as well having a tenant pay down the mortgage for you. On the other hand renting a co-op is a pain in the ass compared to a condo so I would probably sell the co-op cause it's not worth the hassle of going through the approval process.

Sell now since the markets are going down and invest the money you make.

Since you feel you know the market reasonably well, you might also consider going FSBO (no brokers please) and seeing what you can do for yourself first.

OP here. The reason I am hesitating is because I did the same calculations as #6 except that I included appreciation of the property. I left out paying down the mortgage as that seems negligible. But a 5% per annum increase in property values would change the numbers dramatically...

Paying down the mortgage should be at least 1% which is better than getting poked in the eye with a stick. A 5% increase per year is great if that continues to happen but what if the impossible happens and prices stay stagnant over the nest 5 years or even more impossible they go down. I was also under the assumption that co-ops only allow you to rent out for a maximum of 2-3 years during the period you own it for life.

Many co-ops are easier going. Mine approves renters easily and has no maximum subletting period. I'll be faced with a very similar decision soon, pretty much identical financials.

The tax issue was not on my radar. I thought it was a no-brainer: unless you need the cash, SUB-LET: have the renter pay the mortgage and keep a few $$$ pocket money. Seems there's more to it than that.

I think historically, assuming 5% appreciation for your midtown pad is realisitic or even pretty conservative. It's not relevant if things are a bit wobbly in Atlanta and Queens these days.

#14 - recent runup in prices has not been in line with history though - so we dont know that market will not be stagnant.

Number 14 here again: don't forget the wonderful habit that rents have of going up steeply, even if (especially if) the market is weak.

That 2400 could be 3000 in 5 years time, with your monthlies still not much more than 1800 (assuming fixed rate mortgage). And that property appreciating away nicely.

#15, however there is a growing trend of women in the workforce (and high powered jobs) and it is my opinion the trend to dual income households is fueling the boom. 20 years ago, there were much fewer dual income families, which could explain the "doubling" of home values. Just my humble opinion.

not to mention skyrocketing divorces, devaluing of the dollar, global inflation, redevelopment of new york, garden variety price appreciation, television, immigration, education, higher salaries and a host of other factors some know some unknown.

#17, dual-earning households have been a 'new' phenomenon for some time so it wouldn't explain the boom. Also, not all dual-earning couples earn the same amount - typically one earns more than the other, and it widens further when they start having kids. Also many of the guys who earn the big $$'s are married to women who stay at home.

More likely the boom is drive by wall st. bonuses (records in recent years) and hedge fund $$.

OP again...

#14 - the thing to keep in mind is definitely the taxes. In order to claim the 250k exemption, you have to have lived in the property as your primary residence in 2 of the previous 5 years. I can be year 1 and year 4, but it has to be 2 years.

Otherwise, I agree, it would be a no brainer and I would just keep the place as a rental property. The thing is, I want to stay invested in real estate. Not sure how I can do so if I sell.

you can 1031 exchange it if you're o/s the 2 of 5 parameters.

Do you have to live in the apartment for just two years in order to use the exemption? Or own it for 5 years and live in it at least 2? Thanks

What's a 1031 exchange?

The requirement is that you live there for 2 of the last five. Whether you owned it for all five years is not a factor.

Yes, please explain the 1031 exchange. Is that another way to reduce/avoid taxes on real estate appreciation?

google it. as many many have said. primary residence for a minimum of two out of the last five years.

But, if you're looking to sell this and use the proceeds to buy a home, a 1031 exchange may not work. From what I understand (and I'm no expert, so definitely don't take my word on it), you can only do a 1031 exchange to exchange one investment property for another, and not to use the proceeds from an investment property to buy a residence for yourself.