We bought two houses for too much, now we don't know what to do.

[Lauren Taylor]

Hi all! Big question for folks who have been in this world for a while. We are a couple who has recently been educating ourselves on real estate investing through resources like BiggerPockets. We would love to start the journey of setting ourselves up for success in the future. However, we’ve realized we’re in a tough spot and are unsure of our next steps. We’d love to get some advice or suggestions from others.

Here’s the situation:

• -We own one rental property, which we purchased in 2021 for $390,000 (at the height of the market). We have a low-interest mortgage of about $1,500, and rent it for $1,875. It’s a 900 sq ft, 3 bed, 1 bath house. It was our primary home for 2 years.
• -In the fall of 2023, we bought a primary home for $550,000 in a highly desirable neighborhood where homes typically sell for $700K–$1M+. Our house is 1,600 sq ft, but is smaller and not as desirable compared to others in the area, so it’s worth less than that. We are paying $3,900 in mortgage on this home, which is a lot for us.
• -We absolutely love this neighborhood and it would be very hard to leave.
• -Combined our salaries approximately $170,000 per year. (Not tons of room for growth as we work for the state and city)
• -Last summer we rented a room in our larger house on AirBnb, bringing in $500-$900 per month

We are considering several options:

1. -Renting out our primary home and moving to a cheaper rental. We think we could get $2,700–$3,100 in rent.
2. -Renting out the larger home on Airbnb during the summer while we live in a camper, to help offset the mortgage.
3. -Moving back to our smaller rental and selling the larger home.
4. -Selling both homes and starting the investing process over again.
5. -Selling the smaller home and using the cash to invest elsewhere.

We’re hesitant to sell the larger home because we’re not sure if we’d be able to buy back into this neighborhood at the same price, but we understand sacrifices may be necessary. The market hasn’t appreciated enough to make a significant profit (maybe $60K–$80K on each home, at best).

We very much know we’re in a less-than-ideal situation and wish we’d done more research before buying the second house. Hindsight is 2/20 and all that. Any advice or suggestions would be greatly appreciated! Thanks!

[Jay Hinrichs]

Quote from @Henry Clark:

OP

This isn’t a Real Estate question.  It’s about personal finance.

Both homes you bought as a homeowner and not as an investor.  Homeowners will always and can pay more than an investor.  I would recommend you step back and do the deal analysis and view them as investments.  

Just a hunch either one won’t work out as a Real Estate investment.  Ok as a home.

1.  How are your companies, jobs and your personal employment.  Risk analysis on your current home.

2.  Insurance, property taxes, maintenance.  You have to do a deal analysis.

3.  $170 k gross or net.  Let’s say gross and your take home is $120k.  

4.  Just your house.  You need to do the personal finance numbers. Say $48k PI, insurance $4k, property tax $5k, capex $2k.  $59k total.
 
5.  $120k take home, $59k housing without utilities. 

6.   Haven’t discussed your vehicles, and other personal finances.

Change the numbers above.  Recommend you sit down with an Accountant who won’t have the emotion tied to your house and life style.

Let the numbers guide your thought process.  But I think you need to sell both houses and downsize.  Or sell the first house.  Then one of you needs to get an extra job if you want to stay in the current house.  Only if both your company and you have job security.  If either of you are unemployed for 6 months your house or savings are at risk.  

If you decide to get into Real estate investing come back and pose a question. Let’s look at options before buying that will make you money.  

if the 2 and 5 rule works sell them both pay no tax and start over.