Should I sell my rental for money to put down on my own home?

Question

I currently have a rental property that I purchased several years ago in the town where I went to college.  I am currently renting and saving money to buy my own house in about a year.  I enjoy having rental property and plan to pursue more deals in the future, but for now I just need to get into my own home.  Should I sell my rental to put extra money down on my own house?  I net about $200/month on the rental.  I could sell it and net about $20,000.  I'm thinking selling the rental would help my DTI ratio when buying my own house and give me more money down, however, I have really enjoyed having the investment property.  Could I just borrow against the equity in the new house I buy due to the fact that I put more money down on it?  I'm not sure what the best strategy is.  Does anyone have any advice?  Thanks.

Michael Lee · Answer

Hello and thanks for your question Jeremy1  My answer may not be liked by many but I would say not to buy a house.  They usually continue to cost you more money.  It also makes a new liability, not an asset.  It also makes you immobile.  Buy at least 14 more units either in houses or apartment complexes. that might pay all your bills.  Unoccupied units will not hurt you too much.  Locate your new investments growth is be ready to move wherever its in the right part of the real estate cycle.

Wait until you are rich to buy a house and look at it like an investment.  Do not sell your rental house unless it does not meet your goals.  Owning just one rental unit will never let you retire.  You need to own 15 to 20 to make you enough to retire and pay all of your bills.  You should save more money and do not buy anything you do not need to have.only spend big money on things that you will make more on than that costs you.

Go to any local real estate groups and events.  Where the hell is Tomball?  I've never heard of Tomball and I have lived in or by Dallas for about 61 years and I have never heard of Tomball.  Can you make more money where you work?  Network with the other attendees of local real estate clubs or events.  Make sure they are not a front for gurus.  Listen more than you talk there.

Good luck to you!

Jim Cummings · Answer

@Jeremy Mahan. Best bet is to keep your current rental (assuming your happy with it) and buy another property to live in - whether SFR or MFR is up to You & Wife.

Surprising (to most folks) Having another $20K Down Payment doesn't significantly alter your monthly payment.

For Example: Assume a loan of:

1. $200K, 30 Yrs, 4.75% Interest rate. Payment is $1043.29.

2. $180K, 30 Yrs, 4.75% Interest Rate. Payment is $938.97.

Difference is $104.32 in your Monthly Payment. The surprising reality for most folks is it's takes a bundle of money to drastically really lower your monthly payment.

Jeff Wallace · Answer

@Jeremy Mahan Since you said you enjoy your investment property and you are interested in buying more ... If I were in your shoes, I would do two things -

Thing #1 - Make sure you and your wife are on the same page - You will have an uphill battle if you guys want different things out of life - BUT if you are both working towards the same goal, it will be a fun ride!

Thing#2 - Use your owner occupant status to its full benefit (Low down payment-Lower interest rate, etc) and buy your next rental property now as an owner occupied home and live in it for a year or two while saving for rental property number three - Buy rental number three as an owner occupant and live in it for a year or two while saving for rental number four .... and so on.

You see that your wife will need to be onboard for this to work out - You will be buying a home that is possibly not quite what she may have in mind for your "forever" home and there will be occasional moves as you acquire new investment properties - Eventually, you will not be able to continue this technique and you will get to buy that "forever" home.  It will be a bit of a hassle with some sacrifice, but it is the easiest way to buy rental property and when you look back, you will likely feel that the sacrifice was minimal and you should be in a better financial situation to buy a nicer home for your residence than you are able to purchase now.

Good Luck,

Jeff

Ali Boone · Answer

I would recommend running the numbers. Is your rental cash-flowing? You're essentially asking whether you should trade in a possibly cash-flowing property to buy one for yourself, which will surely not be cash-flowing.

What are all the numbers on these?

Ian Kee · Answer

I have to agree with Michael. It sounds like you have a good rental, why give it up just to create a new liability? If I was you I'd just go look for a house that you can find off-market, and get seller financing so you don't have to worry about getting a loan from the bank.

Khara Brown · Answer

Do you have equity? Could you use it as collateral? Check with your mortgage lender and see if that is an option for you.

Jeff Wallace · Answer

there are very few multi-family options in the woodlands - a few areas in tomball or conroe

Jeremy Mahan · Answer

@Jeff.  I may look into doing that.  My wife is actually on board as far as acquiring investment properties and has suggest looking for a duplex/triplex where we could live while repairing the other.  We have had a hard time locating the right property, however.  I see you are in The Woodlands.  If you have any advice about where we might find a house/multi-family in the general Tomball/The Woodlands/Cypress area, I would welcome it.  Thanks!

Should I sell my rental for money to put down on my own home?

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