Calculating ROI on converting to rental and best way to finance?

[Levi Bjork]

Hi All,

I'm a super noob at this, first post. I've lived in my home since 2008 and we are looking to upgrade while keeping this home and converting it to a rental. What do I consider to be my 'Investment' into this home when trying to get a good gauge of ROI? My original down payment (and subsequent refi costs)? The amount of principle I've paid so far? Principle and interest?

I'm also considering doing a cashout refi for roughly a $70K down payment for my new home. That brings up another set of issues. Does this make sense if I'm going to lose my low FHA rate of 3.625%? I am being told that the refi will be considered an investment loan since I'm using the $70K for a new owner occupied loan, so the rate will be .75 - 1% higher rate. Details:

Current home (3bd, 1.5 bath, 1404 sqft)

Purchased in 2008 for $179,500 (FHA)

Remaining principle/Rate: $155,000, 3.625%

Current Value: $311,000

Monthly payment: $1044 (includes $70 PMI)

Convert to Rental:

Cashout Refi: $70,000

New loan Amount/Rate: $225,000, 5.0% (?)

Monthly Payment $1391 (estimated, No PMI)

Potential Rent: $1600-1700

Net Profit/month: $209-$309

Again, I'm not sure how to calculate ROI here since I don't know what to use as my invest amount (but $200-300 month profit doesn't seem like a lot....). I don't have the $$ for the down payment for our new place which is why I'm considering the cashout refi. I looked into HELOC's and Home equity loans but because of the shorter term/Higher payments, those are not options. Would I be better off just selling my current home and taking the extra profit and investing in a new property? It would not liklely get me a house the size of my current home (which would mean lower rent potential), which is why I'm trying to find a way to hold on to it. Any suggestions?

Thanks,

Levi