Should You Sell Your NYC Condo or Turn It into a Rental Property?
We’ll discuss this topic in the following video. I’m Nick at Hauseit based here in New York City..
Check out our website www.hauseit.com to learn how to save money on commission when buying and
selling real estate in New York City, Long Island and the Hudson Valley. So let’s get started!
If you’re like most homeowners in NYC, you may have originally purchased a condo to live in.
But after a few years, you might need to upgrade to a larger apartment,
change neighborhoods or simply leave the city.
When this happens, what do you do with your existing condo? Do you sell it and wash
your hands of it completely? Or, do you hold onto it, and convert into a rental property?
Well, the answer isn’t always obvious. There are several
advantages and disadvantages to both selling and renting.
Let’s start with selling. What’s the advantage?
Well, the main benefit of selling is that you don’t have to be a landlord. Being a landlord
can be time consuming and stressful. Moreover, there’s always a remote risk of a catastrophic
event such as you being sued, having to evict your tenant or your building burning down.
While tenants behave most of the time, it’s always possible for you
to end up with a bad apple. If you’re busy with your job or family life,
you might not want to have to worry about things blowing up with your tenant,
and possibly spending tens of thousands on legal fees while not receiving any rent.
Even if your tenant is cooperative and pays on time, there are also maintenance headaches
you’ll have to handle from time to time. What if there’s a leak coming from the ceiling?
Or what if an appliance breaks? You’ll need to deal with all of these issues as they arise,
and quite frankly, some homeowners don’t have time for this. It makes more sense for them to sell,
and perhaps reinvest the proceeds into stocks or some other more passive type of investment.
Another advantage of selling is that you can capitalize on a strong market
and ‘book your profit’ so to speak. Things happen,
like COVID-19. Sellers who got out before the pandemic were obviously better off than
those who hadn’t got around to selling yet. Of course, we think things will recover,
but for certain types of properties it might take years for sale prices to fully rebound.
So what are the disadvantages of selling your condo?
The primary downside of selling is that you’ll be on the hook for closing costs. Condo seller
closing costs in NYC are 8% to 10%, so this will take a huge chunk out of your sale proceeds.
Selling also means you’ll miss out on any future price appreciation. And in our opinion,
it’s hard to beat NYC real estate in terms of long term growth, compared to other real estate markets
nationally. But, if you intend on investing your sale proceeds in the stock market, it’s possible
that may provide the same or higher return over time compared to holding onto your condo,
especially factoring in risks like vacancy, repairs, etcetera.
Now let’s talk about renting.
What are the advantages of converting your condo into a rental property?
Well, for starters, you can start to take advantage of something called depreciation.
As a landlord, you can deduct your purchase price plus capital improvements over 27.5 years.
For example, if you paid $1,000,000 for your apartment, the annual deduction is worth over
$36,000 per year. This can be deducted from profits in addition to all other expenses,
such as taxes, common charges, mortgage interest, repairs, etc.
So at the end of the day, you’ll probably have little or no tax liability for your rental income.
And in certain instances, you may have a loss, which can be partly or
fully deducted against your active income, depending on your specific tax situation.
Another advantage of converting to a rental property is that you’ll avoid paying seller
closing costs. You’ll also avoid incurring any immediate capital gains tax liability.
Furthermore and with the exception of the recent pandemic,
rents in NYC tend to go up consistently over time. So the combined effect of rising rents
and your mortgage paying itself off over time will ultimately give you a fully
equitized asset with healthy cash flow somewhere during your retirement years.
So there you have it! We hope you enjoyed this video, and if you did,
please like, subscribe and leave us a comment. We’d greatly appreciate it.
I’m Nick at Hauseit, and we’ll see you on the next video!