Should we sell our home to get started in REI

Question

My wife and I are looking to get into real estate. Right now we have a home with a va loan at 3.75%. Our VA mortgage is 1700$ a month and we owe 262k. Right now our home has an estimated worth of 345k.

Should we sell and buy a multi family using the VA loan as well as purchase a small single family with a conventional loan to get started? We would live in one of the properties while renting the others out in hopes to get our portfolio started. Right now we have about 10k in savings.

Our home wouldn’t cash flow very well according to rent data here in Spokane wa.

My wife is concerned it will be hard to find a multi family deal that will cash flow in Spokane, wa since the market is so competitive right now.

Any comments/ tips/ advice would be greatly appreciated. Thank you.

David Clinton III · Answer

@Gabe Fernos

Some principles to consider:

- you have to live somewhere. If you sell your current home, you will need to either rent (at ever increasing rent prices) or buy somewhere else to live.

- your costs to sell will be approx. 10% of the sales price here in WA.

- if you sell your home in a high market, you’ll likely buy in a high market. Taking advantage of the high market to sell your home is great, however, see principle #1 above.

Assuming your numbers are correct, you will have about $50k to work with. Then you have a VA Lon at your disposal and could buy a 2-4 unit building to “house hack” and start renting out. This may be a great play. The trick is finding a building to buy and jumping on the deal immediately.

I’m happy to sit down and talk through strategy further with you. Let me know in a direct message if this would be helpful and something you are interested in.

Gabe Fernos · Answer

Hello @MaxmilianGlodde,

We do not have PMI since we have the va loan.

We thought about renting but we’re discouraged we wouldn’t be able to find renters willing to pay 1800-2000$ although we have seen other properties rent for those amounts in our area. We also have put around 30-50k into our home (New flooring, paint, stainless steal appliances, etc) and were worried that could/ would be damaged by renters. A friend in real estate suggested selling our home so we don’t have to worry about that happening and starting by moving into a single family home and purchasing a multi family to cash flow. My wife is concerned that we would lose most of the money in fees.

One lender suggested refinancing our home to a conventional loan and using the VA loan for a multi family home to get started.

We feel stuck with the high mortgage payment and only 10k in savings.

Knowing this would you try to refinance and rent our property, or look into selling our home instead?

Thank you so much for your time.

Maximilian Glodde · Answer

Hi @Gabe Fernos,

When you say your home won't cash flow well, what do you mean in $$ terms?

Assuming you can cash flow to some degree on the property, I would consider the followin:

1. If you have PMI on the property currently, consider getting that removed via refi.

2. As long as you live in the property, you can take a HELOC on the property up to full value and use that money as a down payment + reno on your new place. Say you pick up a multi for $400k and live in half, you'll likely be able to put 5% down and have plenty cash left over for renovations if needed.

3. If the market is that competitive, surely you should be able to rent it out with little difficulty.

4. I would look at you entire portfolio when it comes to how much you could make. Meaning, if you can keep your current property and get a HELOC, you avoid the selling transaction fees and get access to the most cash. When you combine the fact that you will be renting our the other half of a duplex with owning your current property, you'll probably find that your monthly payments will fall on a net basis while growing your asset base.