First-time investor! Am I approaching this the right way?

[Joey Streight]

I'd love to get some advice/perspective about the situation I'm in, and how I should approach my next move-

I'd always toyed around with the idea of real estate investing but it always seemed like something that other people did because "Who really has more than one mortgage at a time, right? That's crazy. The only safe way to invest in real estate is to come up with capital free-and-clear, etc." I'd put myself in a pretty decent position on my current primary residence with a 3.25% interest rate and with my W2 income (great for this area) and could have probably lived pretty well in perpetuity, especially once my SO finished her graduate school program. However, last week (and a little bit out of the blue) we just had a great opportunity pop up for a home and some land in the school district that the kids attend, and it came at a bargain due to a combination of some work that needed to be done, the fact that it likely wouldn't pass an inspection for an FHA loan easily, the season, and the direction interest rates are moving. I wanted the property but I didn't want to give up my current position so I just... went for it. I secured the financing, down payment, etc and we close in 3 weeks or so.

Here is/was my initial plan:

Rent it out. I figure, at the interest rate I have, even if I can't rent it out for enough to cash flow or even if I'm in the hole a little bit, I will come out ahead in the long run by holding the property. 

I recognize that my "plan" is very basic and isn't really much of a plan, so what I'm hoping for, from you all here, is some help with the fine-tuning or even re-focusing. I'm not entirely sure if I have the time to manage the property myself (at least initially), because of my W2 job. This will obviously impact what the cost of this investment but it may be inevitable (or possibly even worth it, if I can invest my time in more valuable areas). 

What would YOU do? Rent it? Sell it and buy other properties? I see people here talking about HELOCs, etc. I'm sure there are dozens of other strategies I don't know about. 

I'm not sure what details may or may not be helpful but here are some: 

1.) Current/old residence was built in 2019. I bought it in 2020.
2.) It was the model home for the builder, so it has the benefit of being one of the smallest/"least" nice homes on the street (I assume that's a benefit)?
3.) My interest rate is 3.25%
4.) I'm estimating that I probably have around $80,000 in equity (I obviously lucked into this like many people did)

5.) I will know more about what kind of equity I'm looking at on the new residence after the appraisal and after I do some work (I will be able to do this relatively       cheap as I'm a contractor)
6.) My interest rate on this residence is 6.25%
7.) This property has a 2 bed, 2 bath house on it that has it's own address that I'm hoping I can also rent out

I feel like this is a LOT of information for my first real post, so I'll stop for now. Thank you in advance!

[Dorothy Butala]

Let's jump right in. 1. Managing a SFH that has been relatively well maintained should pretty easy (but I may be biased since I have been managing properties for years). With a few systems in place that remove the "time suck" of collecting rents manually and dealing with bad tenants, the property shouldn't cause much disruption to your current schedule.

2. If you are up for renting, that would be the path I'd choose - because I'm doing the same think you are doing right now, and have done it once previously. The first property I left and rented had a 3.7% interest rate and I had about 75K in equity in it, and the house I am doing it with now has a 4.5% interest rate and about 80K of equity. My mortgages and expenses are completely covered by my rents for my first property, and projecting the house I am leaving will be in a great position too - I currently house hack and rent to medical students, and just two rooms with a shared bath cover my mortgage - once I move and rent out the master suite, all my expenses will be covered, and still have a little gravy on top - not to mention the ability to use my LOC from my equity.

3. If don't have to sell, I wouldn't.  The market is still super inflated and rates are high - so to find something that would cashflow like what you currently own - you'd basically be wasting time looking for something more expense that would garner you less benefit. 

4. Have you run the comps to see what rent range the property would garner?  Run the calculator to see the operating costs and income it would produce?