1st Rental, Current Homestead - Advice needed

[Dan Piercy]

Hi All,

I am looking for advice we are looking into investing some money into our first rental and at the same time are looking for a bigger house for ourselves.

With this in mind we are considering keeping our current house and making this our first rental possibly in the future if we wanted to downsize we could return as we really like the neighborhood.

Our objective is long term investment to supplement out 401k’s although likely along the way we will need a balance between cash generating property and appreciation driven.

So Financials

Original Purchase price $300K in 2014 (Estimated current value $330-340k)

Deposit 20%/$60k

Interest Rate 3.75%

There is $200k left on the mortgage

I am using a excel rental calculator and I am using the original purchase details without updating for the reduced mortgage or higher appraised value as that seems to complicate.

Assumptions:

Estimated Rent $2300 p/m (Based on zillow and comparables)

Vacancy Rate 10%

Property Taxes $8800

Insurance $1200

Maintenance/Repairs $2000

Utilities $600(This was to include mowing services)

Advertising $250

Annual Expense inflation assumed at 2%

Property appreciation assumed 3% (This might be conservative Ann arbor has been 4-5% for last 5 or so years)

The property calculator gives me -2% return on cash but 16% return on investment.

Based on this what advice would you give me or watch outs?

Thanks

Dan