Should we rent our current home or stay there and invest in bmore

Question

Hi, All. My husband and I own a townhouse in Glen Burnie MD. We are looking to get into buying and holding investment real estate. We bought the house in 2014 and we are refinancing the mortgage. There is no equity in the home right now. After we refinance our monthly payment will be 1950. I talked with a local agent in my area and she said we could rent it out for $2300.

My question is should we rent it out and upgrade to a single family home. Our current budget for the new house will be $400,000.

If we don't go this route, we are also considering buying investment real estate in Baltimore.

Thanks.

Ned Carey · Answer

@Susan Bmore @Asumahu Mustapher    What is your current home worth? What kind of savings do you have?

Renting your current home out will be negative cash flow over time. If you are moving up to a more expensive house, you are looking to be house rich and cash poor.

Andy Gross · Answer

I would say that you should stay in your current place, and find something else to rent out, for the following reasons:

- Moving is expensive. Not just the actual cost of the move itself, but what about the expenses with setting up a new house? Will you need to purchase new furniture because your old stuff doesn't fit? I had to move from one condo to the next in my complex, and I was out about $1000 in total. I saved a ton of money because my friends helped me move and my landlord owned both places so there wasn't renting two places at one, but there are always unexpected expenses. It was different when I was in college and all of my worldly possessions fit into my Honda.

- Moving also has a non-monetary cost. It's time consuming and stressful. That's time you could spend driving for dollars, researching better deals, or just enjoying yourself.

- The profit margin on your place seems slim. Even if you self-manage, have no maintenance or cap-ex for the first few years because your house is in perfect condition, a single month of vacancy will wipe out your profits for the previous six months. Add in turn-over costs, and you could find yourself in the red for the entire year. And self managing doesn't really save you money because your just trading time instead. Sounds like a job to me.

- You can do better, with less risk, elsewhere. Baltimore City is one option, but so is Baltimore County, Frederick, Hagerstown, Aberdeen, etc.. There are other places within an hour drive that the hit 1-2% screening rule.

- Your bank might throw a fit because you likely have a residential, FHA mortgage on an investment property and you've only lived there for a few months after refinancing. This may trigger a default. I might be wrong, but this is definitely something you might want to ask a mortgage broker about.

Personally, I would stay, unless there is a compelling reason to move, such as the desire to shorten your commute, you want to be in a better school district because of your school-aged kids, or you hate the house you're in. I think, as it stands now, you're going to end up losing money by renting out your current place and by buying a new one.

If you did want to move, I would strongly think about buying a 4 unit multifamily property and living in one of the units. You'd be downsizing in space, but your new mortgage would be almost entirely covered by rental payments from the other units.

Thomas S. · Answer

Your home does not have the numbers to work as a investment income property and should be sold to buy a better property that will produce positive not negative cash flow. It is rare for investors to be interested in investing in properties that do not pay for themselves.

You need to learn the basics of income property investing before you decide to invest or rent your property.

Kim Coleman · Answer

@Asumahu Mustapher I'm a little confused as to what your question is and what your goals are. If you rent your current house for $350 more than your mortgage, how much profit will you really have? Assuming your payment includes taxes and insurance, you still need to account for vacancy (5-10%), maintenance (5%), capital expenditures (5%) and property management (10%) unless you are comfortable managing yourself. Once you factor those in you have negative cash flow.

Andy Gross · Answer

That's unfortunate. There are some great places to live in Baltimore, but those also tend to be tough areas for buy and hold investing.

Susan Bmore · Answer

I wouldn't live in Baltimore. I would only invest there. I would either use a hard money lender or Fannie Mae home ready mortgage for investment properties. I am looking to buy and hold those properties.

From the feedback it seems that I wouldn't make any money by renting my current home.

Joseph England · Answer

Welcome to BP @Asumahu Mustapher! There are many ways to invest and one of them is to use a FHA or 203K to purchase a property, live in it for a year. Then after a year buy another property using a FHA or 203K loan and have renters move in behind you as you move into the new property. I personally use this strategy in addition to buying additional Investment properties.

Baltimore is a great city to invest in and to live. Like any city there are a few bad areas and becoming familiar with the city is the best way to avoid those pitfalls.

Susan Bmore · Answer

Thanks. We are looking to get into investment real estate. The question is should we start with our own home or should we look at investing in Baltimore.

Rebecca Zadell · Answer

Personally, I would always rather live in GB than in Baltimore, but that is personal preference.

Which areas of Baltimore are you considering? I would be very selective. Some parts are great, and would make a wonderful investment. Some are, quite frankly, places I would never take my family. Before making any decisions, sit down and have a talk with your agent about prices in the different areas, and do your due diligence regarding safety in each area.

The great part about investing in Baltimore is that it has Johns Hopkins, the convention center, the aquarium.... If the price is right, you could market in any number of ways. You could do traditional one-year leases, or even  create a niche renting to families who local for several months for treatment. I've seen that work out well.

Should we rent our current home or stay there and invest in bmore

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