Which option would you take?

[John Martinez]

Hello, I have been bouncing this idea back and forth in my head and would like to just post it and get some feedback. I have a potential to rent my current home which would be my first and buy another home. Here are the numbers, let's get right to it. 

Current Home Value - ( Redfin - Zillow estimated) $190K

Rent potential - $1,500 month

Mortgage payment = $1,056 this includes taxes and insurance

5% vacancy and repairs = $150

10% CapEx = $150

Net Income = $144

the property has increased by +20% in equity over the 3 years I have owned it. It is in an area that is stable for rent. A big part of why I am opposed to selling it is I locked it in at a 2.5%. 

The plan is to move out of here and buy another house towards the end of the year or beginning of next year and rent this house out. 

Thoughts? 

* Yes, i understand that the Cashflow is not much, but is cashflow really King right now in this current market? Is anyone finding areas that cashflow +20% of the mortgage cost? 

[Brian Baker]

I'll suggest option three along the lines of what @Josh Young suggested. In Texas, you can't take out a Home Equity Line of Credit (HELOC) on a property that isn't your primary home. Think of it as a second position mortgage that you can take out and pay back as needed. So, you could take a HELOC out on your current house so you don't mess with the current 2.5% mortgage interest rate. It's almost the same as selling the house outright because you'd only get a percentage of the equity after taxes and fees anyway. Best part is, you don't get taxed on debt like you would the cash from a sale. Use that money as a down payment your next home, or even better, another investment property. HELOCs are good for 10 years, so use the cashflow to help pay it off faster and repeat the process.

Also, make sure you have the homestead exemption and consider challenging your property taxes to lower the mortgage payment. It might give a little breathing room and an increase to your cashflow. A good realtor can pull comps on houses in your area and make sure you're not being overcharged by the city/county/state. House prices were crazy high in the San Antonio area when they did tax assessments and the market has cooled off. There is a good chance you're being overcharged. Shopping for less expensive homeowners insurance policy is also a good place to trim the cost of your mortgage and increase cashflow. A 401k loan is also a good source for downpayment money if you have the option.