Making the jump to a second property

[Tanner Webb]

Hey all, 

Thank you for taking the time to read this and help me out. My wife and I purchased our first property two years ago in Salt Lake City for a good rate at 4.29%.  We spent the last year remodeling the basement ourselves and currently have our first medium term renter (We fully furnished the unit to squeeze more rent out).  It's rented at $1950 a month, and our mortgage is $2,650.  With this we will be able to save quite a bit more for future purchases.  

Now If we rent our upstairs as a long term unit (for less vacancy), we estimate to be able to cash flow around $800-1000 depending on vacancy.  This is very intriguing to use for obvious reasons.  

However, in the past two years with rates going up and the housing prices climbing in our area, even if we do the same process with buying a home, fixing up the basement, renting, etc we'd be a lot closer to just breaking even come a few years time, if that.  Unless rates decrease a good amount that is.  We have a decent amount of savings, at least enough for a down payment and closing costs on our next home, but the buying power just seems so limited in our area. 

I guess what I'm getting at is it seems like our options are either bite the bullet in our next primary residence where we are currently located, understanding the future opportunity to rent for cash flow looks pretty bleak, or look in other states where we would have more buying power and try to find a duplex or sfh that will cash flow off the bat.  I know the rates right now are making this harder, but I have heard some success stories in Ohio and even Indiana.  I'd be up for the challenge of a little fixing up, even furnishing and making it a medium term rental. I do understand there is risk with finding a good network out of state of contractors and property managers. 

Anyways, there's my background and questions, any help or experience in this area is greatly appreciated so I don't make a decision I might regret! :)

[Zach Bosson]

Hey Tanner!

Congrats on a great investment, being able to rent the upstairs and cash flow your current home is great!

Your concern is a good one, buying in this market at high rates = high payments and you may not cashflow if you were to repeat the process.

However, 2 considerations.
(1) By not doing it you don't have 800-1000 in your pocket, so although the payment on the new place might be higher than in a normal market you've got extra funds to cover it.

(2) Your new rate is not forever, perhaps in this high rate market, it's as you say, best case you're breaking even if you repeat this process. But in say 2-5 years when rates drop and you refinance into a lower rate, then you're cash flowing! Obviously that's not guaranteed, but experts figure it's likely.

I would be happy to PreQualify and talk shop - personally I'm on home #4 doing the exact strategy you outlined, home #5 incoming, rates aren't slowing me down.