Advice for new landlord

[Bryan Sims]

Hello all, I indirectly became a landlord when my house in Youngsville, Louisiana did not sell.  It has been rented for 1 year now and I have 2 years remaining on the contract.  I've relocated to the Houston Texas area.  Even with this home not ideal for rental, I've seen the potential of generating income.  Especially if the home was closer to me where I could perform routine repairs.

Currently this rental is financed under a 15 year note, I'm only cash flowing about $300/month after mortgage, taxes, and insurance.    My gains will come when I sell the house in 2 years.  I currently have 52% equity in this home.  

I'm considering a cash out/refi on this home to a 30 year note. I would maintain 20% equity and have approximately $100k in cash. This would increase my monthly cashflow and I could transfer the title to a LLC. I would like to use the cash as a down payment to purchase 2 rental homes in my area. I'm sure some of you on this forum have experience with a similar situation. What are your thoughts? I'm sure there is a better way to accomplish what I'm attempting to.

[Aaron W.]

@Bryan Sims When considering cash flow, it goes beyond the mortgage, insurance, and taxes. Consideration should also be given to repairs and capital expenditures to upkeep the property. This may cut into the the $300 you are currently getting.

Having said that, I think holding on is a prudent plan if you believe you can sell it for the price you say in a couple years. If you want to get into real estate investing sooner and need the cash, then you may want to consider the cash out refi to put the equity you've accumulated to work. Consider the appreciation of the equity in the house versus the potential gain you can make by cashing out and investing it. If reinvesting is going to be much higher than the appreciation, then you might have your answer there. You'll want to subtract the cost to refi from the gain, however.

Good luck!