Rent primary home, or do something else?

[Adrian Hall]

Background: This year, we refinanced our primary home from 30 to a 15 year conventional to lower our rate from 4.75% to 3.5% and to finally end PMI. Originally, we were not entertaining the idea of moving anytime soon, but we have been considering renting out our home and buying another place in our city towards the end of 2018, or beginning of 2019.

Our place is a 37 year old 3 bed, 2 bath, 1 car, 1,200sq ranch in a suburban area. The property has 1/2 an acre of land (typical for my neighborhood, unusual for our TN metro area) and is fairly updated with a wood fireplace, granite, hardwood, crown molding, and a newer roof/windows/doors.

We have occupied this property for over four years. As of today, we owe about $125,000 on a home that appraised for $153,000 in May 2017. The home comp'd out in the middle-to-upper area and could theoretically be sold on the retail market in "move in" condition. Our current payment (escrowed) is $1,016. Market rent on a home like ours is $1,200-$1,300.

Our Plan: When the timing is ideal and we are ready to make some moves, I am considering refinancing the home back to a 30 years term. This would allow us to remove the equity to put down/repair another home that would be our primary residence, and turn the math on our current home into something that has positive rental cash flow. Our rate would increase about 1% for an investment-property loan, also. Assuming HOI on an investment property was the same (i'm sure its not), here's my figures:

Proposed monthly:

$660 - mortgage at 30 years at 4.5% estimate

$60 - property tax (appx $700 annually)

$70 - insurance (appx $800 annually)

$60 - vacancy at 5%

$83 - maintenance (est $1k annually)

$1,200 - conservative market rent

Cash flow: = $260

Our "next" home is highly fictitious, but I intend to spend a similar price and search for something that needs some cosmetic work for quick equity with the intent that we may eventually rent that home out later in life, as well.

Would these figures make sense? Or should we consider another idea?

Again, thanks for your opinions and advice.