We are moving... Negative cash flow or sell?

[Jonathan Lyford]

Hi all,

Thanks in advance for your collective wisdom!

So, my wife and I bought the townhome we live in current for 170,000 on a 15 year 3.85% mortgage. It is now worth about 200,000, and we owe about 100,000 on it. We have 8 years left to pay it off.  

We need more space and are ready to move(2 kids since we bought it), and I also have gotten really interested in real estate over the past few months, so I'm trying to figure out how to make this all work.

I've done the 4 square calculations, and in total I will have negative cash flow by around 150-200 per month. However, with the loan being close to be paid off, I'm paying down the principle by around 850 per month. Given the equity each month, I am still "making" 650-700 per month, and that is before appreciation. I ran the numbers and it came out to 11% return on my 100,000 in equity, which to me is pretty good, especially for my first try at being a landlord.

My thought is, since this is my first ever venture into real estate, it would make sense to use a property I already have, and know how it was taken care of, neighborhood etc... then sell and getting a different place I know nothing about; also, to me the downside of selling is there are costs associated with selling and then buying a new place in terms of closing costs and such, which I can avoid since I already own this place. It seems less risky to me, and it would be a way to give me the chance to learn about being a landlord before I buy my next investment property after this one.

In 8 years, it will be paid off and than cash flow over 1,000 per month.

My wife and I have good, stable jobs and live well below are means, so we don't need the cash flow monthly; this is more so just the first of hopefully many more properties as long-term investments. We also will be putting 20% down on our new home, and would still have 6 months expenses saved as an emergency fund.

I know in general negative cash flowing properties are not a great idea, but given the specifics of this situation, what do you think???