Keep my first home as a rental?

[Corey Schneider]

I'm looking to get into buy-and-hold real estate investing. My wife and I close on a new house next month, and I thought that we would keep our first house and use it as our first rental property. Now I'm wondering if we should sell it and find another property to reinvest the proceeds in.

Here's the situation. We're in the Kansas City market, and we bought our house for $140k five years ago. We went FHA, putting 3.5% down at 3.75% interest. Our total payment (P&I, MIP, property tax, insurance) is $1015, and we still owe nearly $123k because less than $250 per month is going to principal. I think that we could probably sell the house for $170k with just minor repairs and updates. I think that it might be possible to rent for $1500 per month, or $1400 easily.

Putting somewhat optimistic numbers into the BP calculator ($1500 rent, no utilities, 5/10/10% vacancy/CapEx/management) gives me only $22.26 cashflow, 4.09% CoC ROI.

The other thing is, as I understand it, once I only owe 78% of the house's value, we can drop the $117 per month MIP (FHA mortgage was before June 2013 and we are about to make the 60th payment this spring).

Would that extra $117 in cash flow each month make this deal workable? Should we try to get the ~$30k of equity out of this house and look for a better deal?

Other possibly-important details:
I work 50 hours a week making over $100k per year, but don't have a lot of cash on hand, especially after putting a down-payment on the house we're moving into. Between my work schedule and lack of handy skills, property management and maintenance would probably all have to be hired.

Any advice is appreciated.