Question on next move

[Jannah M.]

Hi everyone!  

I'd love some advice here.

I currently live in a large 4 bedroom, 3.5 bath home in Oakland, California. A conservative estimate of it's current value is $900,000 with about a $600,000 loan remaining. Yearly expenses for PITI is about $50,000. I am able to get rent of about $52,000 but that doesn't include water, sewage, gas and electric, and wireless, and yard maintenance which are included in rent. I could spend another $100,000 and convert the garage to get about $1300-$1500 more a month in rent.

I am now in contract for a new house at $650k in Oakland, and it needs about $50k in repair work. Yearly PITI is about $44,400. I could rent out two of the three houses in the house for $21,600. The new house is on a huge 10,000 sq foot lot.

Here's my question: 

Should I keep my current house, and count on bay area appreciation or benefit from the house paying itself off?

Or should I sell my current house, take out the $250k or so that would be remaining after expenses in selling the house and use that money to try to build another 3 bedroom house on the lot of the new house?  We could get at least $36,000 in rent from the 3 bedroom house, which I estimate will cost $300,000 to build.

Or, should I keep both houses and just not build?  Or keep both houses and find a way to finance the second house on the new house's lot?

Thanks for your thoughts!

[Brandon Ingegneri]

You can play this anyway you like really. It honestly all depends on what you are trying to do. Personally, I would like the idea of having less property with less debt on it when it comes to a primary residence. When you substantially reduce your own personal overhead, it makes compounding money and cash flow that much easier when you do eventually stack property. 

I’d sell whatever I could, throw as much on whatever house will be your primary residence, and have the lowest monthly payment possible. All of that extra money you were paying in mortgages that you would now be saving on will stack up quickly. Then you can renter with additional investment properties and have a much reduced level of overhead allowing you to acquire more faster.