If you own or are planning to purchase or build an apartment complex, then you’re probably wondering whether it’s better to rent, lease or sell your apartments. Because selling condos has the same or higher potential ROI as renting, but within a much a faster time period, selling your units can seem quite attractive.
Condos are an easy way to make back your investment on an apartment unit by selling the individual units as quickly as possible. With high selling prices, these allow you to make up your investment more quickly so that you can invest in something else. However, because you won’t be getting returns on the investment after finalizing selling the unit, but will still have to hire a Condo property manager to help with collections, management, and building upkeep, it can be a hassle over the long term. Because you don’t continue to reap returns for the duration of owning the building, selling condos is a fast way to make back your investment, but not extremely profitable in the long term. In addition, condo sales are on a steady decline, especially in the Bellevue and greater Seattle area, where rising prices often mean that those willing to live in a condo can’t always afford one, especially with homeowners association dues and appreciate value more slowly, which is making them less and less attractive to actual buyers.
Renting or leasing out your apartment units offers the opportunity for longer term investment, because while you have to wait longer to make a return or even break even, you also keep your investment for longer. Rental units require you to have a Bellevue property manager to manage the rental units, help the tenants, and handle complaints or emergency repairs. They also require you to handle regular maintenance and upgrades, which means investing money back into the building and the individual apartments. Renting or leasing takes longer to provide a return because you typically do not get a down payment and get less in payments each month. However, after 20-30 years, your potential for return is greater, because you have already earned what you would have from selling the unit, and therefore are making all profit, minus the fees for maintenance, property management and refurbishment.
Usually, the best strategy is to examine your neighborhood, determine if you will rent out your units quickly enough to begin making money back on your investment, and to determine how quickly you have to make your investment back in order for it to be a financially sound decision. If you’ve purchased a Bellevue apartment complex with six units, then you could determine your rental rates based on similar units in the area, deduct taxes for the period, deduct a minimum of 2% for maintenance costs and another 5% for emergency repairs or upgrades, and then calculate how much you earn based on that. If you fall under your minimum time to return on investment, you can try to sell a condo from the complex to make the return back faster.