Homeowner looking to convert to Rental and House Hack

[Mark Askey]

Morning.

I have been reviewing the forums, listening to podcasts and just bought and read two of the recommended books, so I am not asking this question without doing some digging beforehand.    

We own a 3bd/3ba home in McKinney Texas (North Dallas).   We have a 123,000 mortgage on it.   It would probably sell around $190,000 today, so we have some equity in it.    Rents in the area for similar format homes are around $1500.  Our mortage is only $1000 with taxes and insurance included.

Talking a HELOC out for a downpayment on a new home sounds like it makes sense, but I am reading that may not be the best thing to do. We don't have any additional cash to use for a downpayment on a new home, but may have availability to borrow from parents.

I ran the numbers on renting my current house and it looks like it would break even if we or generate a $100 or so dollars a month in cash flow if we managed the rental. It all depends on how much money we take out on an HELOC for a new house.

Our goal would be to find another 3bd/2ba home either in North Dallas - maybe farther north into ANNA and live there a few years and repeat.  Or find a new home in another part of the country where the market will turn over the next 5 to 10 years.  Ultimately, I would like to own enough rentals to have an income coming in to retire, provide investments my wife can draw from instead of investing $500 a month in a $1,000,000 life insurance policy and realistically retire at 70. ( I am 53) and also need a place to draw money out for College in the future. (Kids are 10).     

My Delima:   We are barely living paycheck to paycheck today on a single income as wife can't work.  I will take on two jobs if needed. My goal was to find a way "job" for my wife to do from home and start us on a path to getting ahead.  Our credit is excellent and debts are small, so this move feels right but I am sitting here wondering if I am being realistic about all of this.

I am listening to people on podcasts who were in worse shape than I am today and took the leap and made it happen.   I am sure that my wife and I can be as successful as others have been.   I just need some input if I am missing something here.

Your brutal and honest comments are appreciated.

Mark 

[Tyler Hodgson]

@Mark Askey - I think it is great that you are exploring real estate as a possible source of additional income, and a pathway to retirement.

A little about me:

• I'm a local mortgage broker and have lived in the DFW area for almost 20 years (minus a 4 year stint in the Marine Corps). I currently have a primary residence (with roommates), 2 rental properties, and finishing up my first rehab/flip deal. I have a Master's Degree in Accounting and will have my CPA certification in a couple weeks (exams passed, just waiting on the license). I love real estate and finance!

My few recommendations:

• I'd look at a cash-out refinance rather than a heloc on your current primary residence. The terms are typically better. (I am a mortgage broker and can help you out on the mortgage side of things if you'd like. I'm happy to run some numbers and answer any questions you may have).
• $1,500 rent with $1,000 for PITI (principal, interest, taxes, insurance), sounds like those numbers could work. Two things to consider here: (1) how much do you plan on spending in capex items over the next few years - are your appliances, roof, HVAC, water heater, etc fairly new? (2) if you do a heloc or a cash-out refi your PITI is going to increase and monthly cash flow will decrease. You'll definitely want to run the numbers on that.
• Converting primary to a rental and purchasing a new primary is a good way to go if down payment funds are tight. You can purchase your new primary with a variety of low down payment options and may not even need to pull much (or any) equity out of the current house. Most mortgage companies have 3.5% FHA and 3% Conventional loan options for primary residences. I also have a 1% down Conventional loan that is not offered at most places.
• Your dilemma: you are living "paycheck to paycheck on a single income." I strongly recommend that you strengthen your overall personal financial health before undertaking real estate investing and leveraging yourself with additional debt. If things go sour with the rental and you have a  $5k or $10k expense come up, or extended vacancy periods, will you be able to make it? What happens if you lose that job that is your one income source? Make sure you balance that personal budget (and by balance I mean have some excess income for savings each month). 
• Keep doing your research. The podcasts, books, forums, and other BP content are great ways to start learning and help you make the jump! So far it looks like you've been doing this.

Good luck and let me know if I can help in any way!

-Tyler