Starting Out - Cash Out Refinance/Renting Primary Residence

[Aaron Cook]

Hey guys,

Brand new "wannabe" investor here. My wife and I are excited getting started with real estate investing and are working our way through the education process before we take any action. We thought it could make sense to get started in real estate investing by doing a cash out refinance on our current house, renting it out and moving into a bigger house using the cashed out equity as our down-payment. 

 We have been trying to use the rental calculator on Bigger Pockets to understand if our current property would positively cash flow once we turn it into a rental.

The calculators don't seem to be set up for someone who wants to start out in the real estate investing world by cash out refinancing their current house, turning it into a rental, then using the cashed out equity as a down payment on a new primary residence.

That being said the more we played with the calculators it seemed like we would get less then $100 of positive cash flow when we factor in Capex, Property Management, Vacancy, Repairs, etc... This is making me think this idea could be a poor strategy. I am curious if people have done what we are thinking about doing and have success in getting their house to positively cash flow once they have cashed out all the equity and turned it into a rental.

The numbers for our current house are: 

• 20 year fixed @ 3.87%
• Purchase price 125k
• Home Value 185k (have not had official appraisal this is based on neighborhood comps)
• Mortgage balance 90k
• Rentometer's Suggest Rental Price $1200-1400
  • We based our numbers in the calculator tool at 1350 because our house has several features that sets us apart from other other houses in the area. 
• Screen shots attached show my number from the Bigger Pocket Rental calc tool. 
  • We were alarmed by the 1.1% Cash on Cash Return and the 6.59% annualized ROI.