What would you do? Advice GREATLY appreciated!

Question

Hi, I’m am in my twenties and have taken a big interest in real estate investing. Currently, I am learning as much as possible and closing on a one family home with a current renter. 30 year 25% down. My father and I are going in the deal together more as a learning experience and to get our feet wet.

Aside from that, I live in a separate home that I purchased 10 months ago with a fha loan. Since not much was put down on the house I currently only have about 8% equity in the home.

If i were to move to another state, would it be smarter to

1) sell my home (worried I would end up owing money or a wash at best when paying selling costs)

2) rent the home (worried about not having enough equity in the home to count the rent as income when applying for a new home mortgage)

3) look into a wrap mortgage or seller financing (most appealing in my mind being able to get a deposit up front and charge interest to the buyer. However somewhat worried about not being able to claim the income as with renting, and also risks associated with wrap mortgages)

My long term plan is to acquire as much passive income as possible through real estate. That combined with not profiting from selling the home have me leaning toward options 2 and 3.

I have read if you are relocated to another state for work you could be elligible for a second fha loan.

When moving to the other state i would be looking to rent or do another fha loan as I don’t have the resources to put much down on a new house.

If you’ve made it this far, thank you for reading! If you were in my shoes, would you choose one of these three options or would something else be a better option? Thanks in advance!

Clay Hartwig · Answer

You could offer  one or both houses  as rent to own  that would put a small lump sum in your pocket to restart  give you higher rents  and drop your maintenance cost almost zero  because the people would treat the house as their own

Thomas S. · Answer

Since it was purchased as a personal home I would sell and move on. SFHs generally have low cash flow making them high risk due to vacancies. They are primarily an appreciation play. The question is how many negative cash flow properties can you afford to invest in.

Cara Lonsdale · Answer

The lender will look at your taxes first to assess if the property is a profit or a loss.  In the absence of a 2 year tax history average as a rental, the lender will take 75% of the rental income to add to your income.

So, if 75% of the rental income covers the mortgage payment and expenses (PITI, HOA, etc), then it should be a wash, and not count against you.  If the 75% rental income doesn't cover all of it, then the lender will look at the overage amount and add that to your debt coverage, which can affect your DTI.

I would avoid a wrap unless you have an assumable loan.  These were big in the 90s, but lenders got wise to them and loans were being called all over the place.  Now lenders have very strict and clear language about pohibiting a wrap unless it is an assumable loan.

I am not sure about the double FHA.  I know there are exceptions.  My husband and I both had an FHA loan prior to getting married, and then co-signed for a child to do an FHA loan, and there was no problem.  So, that would be a good question for your lender.

Best of luck to you!

Tyler Spivey · Answer

Thanks for all the info! Based on rates in the area for similar properties, I could be looking at $100-250 cash flow each month with renting. Could be more, but am having to pay mortgage insurance. The house would always be a rental. The house has appreciated 5% in the past year and is in an area that is almost completely developed. (Wilmington Island, GA). New roof and hvac. If I can find someone willing to put 5-10% down for a wrap mortgage with 3% more interest than I'm currently paying, and have an attorney experienced with these types of deals draw up a contract that states I can foreclose on them if they default. Would there be any other risks involved? I've heard about the possibility of the bank calling the note due but also noticed that clause is not in my fha loan contract. Also worth noting there are occasionally hurricanes in the area and would love the idea of someone else paying for the insurance and (owning the home) if something were to happen.  Is there a difference in the wrap and renting to own? Would you all do anything different knowing this extra info? Really don't want to sell because would be losing money at this point even though the house is valued 10k more than what we bought it for.

David Wilson · Answer

Would you be negative each month if you rented it? If so, how much, and how long would you be willing to carry it? Would you ever move back or would it always  be a rental?  Is your market appreciating and is the area seeing population growth?Will it need a roof, HVAC etc soon?  Some things maybe to consider. If the conditions are right, hold on to it. I would avoid any wrap.

My experience w lenders is they count 50% of your rental income.  Good luck!

What would you do? Advice GREATLY appreciated!

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