How do I use the rental calculator for my primary property?

Question

I'm new and just learning about real estate investing. I've lived in my current home for 3 years. Would it make sense to rent it out and start house hacking? Has anyone used the rental calculator for this? Not too sure what to put for closing costs and PMI, etc., since that's all outdated.

Nathaniel Hovsepian · Answer

@Sunday Tsai So you could possibly get about $60k out of the house to put towards something else. That would be the highest you could most likely get. You can shop this around at banks, both big and small, and see what they would be willing to do for you. Do you think that would be enough for a down payment for another place?

It may just end up being in your best interest to sell the place, take the 31% (-minus closing costs) and put some of that into a multiplex that you can house hack.

Thoughts?

Nathaniel Hovsepian · Answer

@Sunday Tsai

Those numbers look a little tight for my tastes.  After you pay off your mortgage, insurance and set aside what you need to for tax purposes, you don't really have anything left over. If it was me, I would pass on renting this out.

To answer your question that you asked Joe, yes!

You have a couple of options, depending on what percentage of equity you have in the house. I know you said that it has appreciated ~$150k (that's great!) but you would need to know what the percentage is.

Typically, banks will only give loans out to about 80% max of a homes value. So if you have 30% equity in the home, you will only be able to get a loan for 10%. This would apply to a HELOC (Home Equity Line of Credit) as well.

Let's hear what your numbers are from here and see what we can come up with.

Joe Splitrock · Answer

@Sunday Tsai when you say rent out your current home, are you saying to rent out a portion and still live there?

The calculations are different if you live there or if you convert it totally to a rental. If you live there, you can only claim a portion of the housing cost for rental expenses. You will want to talk to CPA to properly structure that.

When you convert to a rental, you need to establish basis for the property. That is basically just home value for depreciation. So you are not using what you purchased the property for three years ago, you are using current values as of today.

Simply put, the calculator isn't really designed for converting properties. You could use it, but you will need to figure some things out first.

Nathaniel Hovsepian · Answer

@Sunday Tsai do you have PMI on the home? I would say that your closing costs are 0, since you already have owned the home for so long. You could add them in if you wanted, but seems unnecessary. There are quite a few questions that I would have though:

-What is your mortgage, insurance and taxes?

-What do you think you can charge for rent (per room i assume?)

-Are you going to charge tenant utilities?

These are just some basic questions you should be asking yourself before you think about trying to calculate anything.

Let me know what you come up with and I can try to help further.

Nathaniel Hovsepian · Answer

There you go @Sunday Tsai! I will keep my fingers crossed that you can find one that works. You can always post here and tag me in it and I will get notified and try to help you out if I can.

Happy Hunting!

Sunday Tsai · Answer

That was definitely my gut, so thanks for validating! Will have to start looking for the lucky multi!

Sunday Tsai · Answer

Ah understood. Found some home equity calculators and our LTV is 69%: we owe $446k, estimated home value is ~645k.

Sunday Tsai · Answer

@Nathaniel Hovsepian

Mortgage is ~2900/month, insurance is ~1000/yr, taxes are ~6k/yr

Tenants will pay utilities

Estimated rent is 3500 total, based on comps in our neighborhood (it's a 3bd/2ba)

Sunday Tsai · Answer

@Joe Splitrock

Thanks for the tip! I'm exploring moving out of the house and into a multi-family unit. I'm trying to see how I can analyze the numbers for doing this. We're debating selling it and using the equity for a down payment on a multi-family (it's appreciated ~150k). Actually, just thinking out loud, do people take loans out on their homes and use it for a downpayment on a new property?

Sunday Tsai · Answer

@Nathaniel Hovsepian sending you a note!

How do I use the rental calculator for my primary property?

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