Purchasing a second home and renting out the first

[Charlie Le]

Hey all,

I just discovered this site recently and it's been extremely helpful. Not to mention all the webinars and books. 

Now onto my scenario that I'm trying to get some advice on. I'd like to purchase a second property and would appreciate it If someone can offer some insight or advice into my game plan.

Some info-

Location: Federal Way, Washington

Asset/Income: $90K/year. Cash: $50K Home equity: $330K.

Debt: Personal Loan: $6K 1st Mortgage: $60K.

Goal: Finding a second home for $300-$325K and renting out the first one

I bought my first house about 4 years ago at a great price, $280K, and it has appreciated to roughly $390K (according to third-party realty websites). I've had at least one roommate for the last 3.5 years and paid off all but $60K. I've been dating someone for 3 years now and we've been talking about marriage and having kids eventually. However, this neighborhood has one of the worst school districts in the state and I'd like to buy a decent home in a better district while renting the first house out.

My plan is to take out $50K-75K from the first house's HELOC and use half of it combined with half of my cash to put down 20% on a second home and finance with a mortgage. I'll then use the other half of the HELOC to renovate the first house since it'll probably need at least $10-15K for a new roof, fences, etc. Based on what I've seen this home should rent for at least $2K - $2.5K giving me a cashflow of approximately $1000 to $1200. I'll put all the extra cash in to paying off the HELOC immediately.

However, I've asked this on Reddit and I've had at least three people recommend selling the property and investing the money elsewhere. The rationale is that even if I was able to get the maximum rent and no other variable expenses I'd have no more than 5-6% ROI.

Any advice would be appreciated!