Starting out and need advise on current situation

[Dustyn Perkins]

We purchased a house back in 2017 for 140k that is now worth approximately 265k. Current payment on it is around 900 with about a 4% interest rate.  The expected rent is 1,600/ month.  

We purchased another house and are finishing remodeling it and have about 20k left to spend to finish and move it (cabinets and countertops) and this will be our primary residence.  

Then we have an opportunity to purchase an investment property with a partner and the expected cost per partner is 137,500 with the expected rent per partner to be about 1,600.  The units are ready to rent with very minimal work to be done before renting them.  

I have 2 specific questions. Should we rent the first house out or sell it? The 2nd question is should we pursue the investment property even though we are more cash strapped than normal due to the remodel and if so, would using a HELOC make sense?

Any help with this is greatly appreciated! 

[Jaron Walling]

@Dustyn Perkins My first bit of advice is to take it easy. You're clearly in a position of power so rushing into another deal or renting something you don't want to rent makes no sense. What is the condition of the current primary, what are the numbers as a rental (COC), and what is your gut telling you?

My wife and I were in the same position last year. We sold my old primary residence that would have cash-flowed nicely. The age of the property, 2/5 year tax exclusion, and expected future capex headaches made us sell. The house was about 100 years old. You can only lift properties can so much. It was the better choice. 

We used that tax free $$$ and put a lot more down on our current primary. Rentals are great but not if they constantly bother you. Consider the tenant pool (neighborhood class), property damage, and think about future capex and repairs. Cheers. 

[Robin Simon]

Quote from @Dustyn Perkins:

We purchased a house back in 2017 for 140k that is now worth approximately 265k. Current payment on it is around 900 with about a 4% interest rate.  The expected rent is 1,600/ month.  

We purchased another house and are finishing remodeling it and have about 20k left to spend to finish and move it (cabinets and countertops) and this will be our primary residence.  

Then we have an opportunity to purchase an investment property with a partner and the expected cost per partner is 137,500 with the expected rent per partner to be about 1,600.  The units are ready to rent with very minimal work to be done before renting them.  

I have 2 specific questions. Should we rent the first house out or sell it? The 2nd question is should we pursue the investment property even though we are more cash strapped than normal due to the remodel and if so, would using a HELOC make sense?

Any help with this is greatly appreciated! 

Elaborate a little more on the financing plan - "cost per partner - $137,500" is that assuming a $275,000 purchase price with no debt? And would the HELOC you are mentioning be on one of your current properties? Definitely at least would seem exploring just taking out a 20% down payment loan with the partner on the investment property purchase but I'd have to see more info

[Dustyn Perkins]

@Jaron Walling Thank you for the response. The 1st house was a new construction house when we bought it 7 years ago, so it is still in really good condition. The COC on the 1st house if I am calculating it right would be just shy of 10%.

My wife doesn't want the rental headaches that come with dealing with tenants and potentially ruining the property and having to spend a lot to rehab it.  

Rough math would show us getting about 135k after the sell and if we put that to our 2nd house or invested it, I think the returns would be pretty similar to keeping it and having to deal with the rental problems. 

Thank you. 

[Dustyn Perkins]

Quote from @Robin Simon:

Quote from @Dustyn Perkins:

We purchased a house back in 2017 for 140k that is now worth approximately 265k. Current payment on it is around 900 with about a 4% interest rate.  The expected rent is 1,600/ month.  

We purchased another house and are finishing remodeling it and have about 20k left to spend to finish and move it (cabinets and countertops) and this will be our primary residence.  

Then we have an opportunity to purchase an investment property with a partner and the expected cost per partner is 137,500 with the expected rent per partner to be about 1,600.  The units are ready to rent with very minimal work to be done before renting them.  

I have 2 specific questions. Should we rent the first house out or sell it? The 2nd question is should we pursue the investment property even though we are more cash strapped than normal due to the remodel and if so, would using a HELOC make sense?

Any help with this is greatly appreciated! 

Elaborate a little more on the financing plan - "cost per partner - $137,500" is that assuming a $275,000 purchase price with no debt? And would the HELOC you are mentioning be on one of your current properties? Definitely at least would seem exploring just taking out a 20% down payment loan with the partner on the investment property purchase but I'd have to see more info

Yes they are wanting 275k for the investment property, so 137,500 each. If we did the 20% down payment loan each of us would need to come to the table with 27,500 each and since we have been remodeling that would basically take out all of our cash on hand, so the HELOC on the 1st house would be so we can finish the remodel and finance the down payment. This would be very temporary because we would either sell our 1st house once we move or rent it out then use all of our extra income to pay off the HELOC.

I hope that makes sense. 

[Alecia Loveless]

@Dustyn Perkins I would stretch to keep all the rentals if it were me. I’ve got 25 units and in 5 years only have 1 problem tenant that is only a problem because they like to text/call me 15 times about a small problem after I’ve already dealt with it. For instance we’ve got a bees nest and I’ve already arranged for pest control to come in less than 4 days and notified the tenant about this and still they call/text 12 more times to bring the issue to me.

I don’t think you’ll have that much of a headache if you keep the rental property. Toilet backups are really a myth for the most part that every potential landlord worries about but things like that are actually extremely rare.

I’d rather the potential for long term residual “passive income” as opposed to a one time profit. To me the potential for tax benefits and capital appreciation outweigh the short term benefits of selling immediately.

[Dustyn Perkins]

@Alecia Loveless Thank you for the insight. It's basically a toss up to keep it and rent it out or sell it and use the profits that are tax free to invest in Roth IRA's, 2nd house loan to free up some cash flow, and potential investment property that they are asking 275k for.

I ran the spreadsheet that @Scott Trench has on the article "Millions of Americans Should Keep Their Homes as Rentals, Not Sell. Here’s Why." The spreadsheet shows the net worth after 30 years is basically a wash between selling and renting it out, so it's difficult to justify keeping it.  It seems like a win/ win so it's just a matter of trying to make the "best choice". 

[Jaron Walling]

@Dustyn Perkins Given what you said I'm still selling. Take your profits early and as often as possible. You already won with this house and it served you well. It's time deploy $$$ into other opportunities including the one with your partner.

The cash-flow would have to be crazy to hold it and that's if you don't need the money, but it sounds like you do for the next investment.