The only thing that has you even considering this as a rental is the fact you already own it. As Kenneth Estes analysis shows, its a cash flow negative rental. So, you're trying to justify keeping it by claiming you'll get 4% annual rent increases. I suppose that could happen, but I think its pure speculation. You could see 4% annual rent decreases and your albatross will get heavier. Not to mention you're going to be far away and have to deal with renting using a property manager. Rent of $1800 and PITIA of $1830 looks to me like you're underwater $30 each and every month. And when ANYTHING needs to be done, you're out of pocket. Sell, and move on with your life. If you want to invest in rentals, start looking in your new location.

I have to agree with Kenneth Estes here. Banking on property appreciation to offset cash flow losses does not make sense. Why not find a property that cash flows in any real estate economy and then the appreciation will be pure profit. As to your initial refinance question, if the property does indeed appraise for $290k then you are looking at a 10% equity position and will need to pay MI no matter what. Depending on your credit, you should be able to get a loan for less than 4%. Generally refi's only make sense if you can save a half an interest point. IMO, I would refinance to take advantage of the lower interest rates. I WOULD NOT refinance FHA. Their new lending policy requires mortgage insurance to remain on the loan regardless of your equity plus their rates are higher than convention PMI.

Heya Dave, My personal take is you loosely lump real estate investors into three groups: speculators, flippers, and landlords (emphasis on cash flow). The flipper category doesn't really apply here, so that means you're either going to be a speculator or a landlord. My crystal ball is pretty rusty so I steer clear of speculative investments. You very well could be right and that area is going to appreciate massively in the next couple of years. However, I can say for certain you're going be paying money every month to find out if you're right. Small payments with the hope of a big pay day? To my mind it feels a bit like a slot machine. If you do think the area is ripe for a huge boon, wouldn't it make sense to take that same money and buy a property that DOES cash flow but also shares in the potential upside? That way you get paid money while you wait.

Does this hold true assuming a 4% rent increase per year, in a very high demand area of charleston and if I plan to hold onto it for 10-20 years?

kenneth is right. a $250k home does not work for a rental. in any market other than the big 2-3.

Hey Dave, Here's a dirty analysis: Annual Income Rent - 1800 * 12 = 21,600 Minus 5% vacancy (very conservative) = 20,520 Annual Expenses Monthly Expenses = 1830 * 12 = 21,960 Property Management (10% of rent collected) = 2,196 Upkeep and maintenance (one month's rent) = 1800 Annual Cash Flow = -$5,436 Let's say you drop your monthly payment by 200 a month if you refinance. You're still losing 3 grand a year. Why would you want to make this a rental? If you want to get into the rental business you'd be better served by selling the home, taking the ~40k in cash it frees up and investing in a rental property that actually cash flows well.

Followed Discussions Followed Categories Followed People Followed Locations

Buying & Selling Real Estate

Market News & Data

Market Trends & Data

Buying & Selling Real Estate

Out of State Investing

Real Estate News & Current Events

Real Estate Technology

Investor Mindset

General Info

General Real Estate Investing

BiggerPockets Exclusive PRO Area

PRO

BPCON

New Member Introductions

Questions About BiggerPockets & Official Site Announcements

Off Topic

Starting Out

Real Estate Success Stories

Real Estate Horror Stories

Real Estate Strategies

House Hacking

Commercial Real Estate Investing

BRRRR - Buy, Rehab, Rent, Refinance, Repeat

Mobile Home Park Investing

Innovative Strategies

Multi-Family and Apartment Investing

Land & New Construction

Wholesaling

Rehabbing & House Flipping

Short-Term & Vacation Rental Discussions presented by

Tax Liens & Mortgage Notes

Medium-Term Rentals

Buying & Selling Small Businesses

Outdoor Hospitality

Landlording & Rental Properties

General Landlording & Rental Properties

Managing Your Property

Marketing Your Property

Tenant Screening

First-Time Home Buyer

Real Estate Professionals

Mortgage Brokers & Lenders

Contractors

Real Estate Agent

Financial, Tax, & Legal

Personal Finance

Creative Real Estate Financing

Private Lending & Conventional Mortgage Advice

Insurance

Tax, SDIRAs & Cost Segregation presented by

Foreclosures

1031 Exchanges presented by

Goals, Business Plans & Entities

Legal & Legislation

Real Estate Classifieds

Classifieds

Real Estate Events & Meetups

Reviews & Feedback

Ask About A Real Estate Company

Real Estate Deal Analysis & Advice

Guru, Book, & Course Reviews

Syndications & Passive Real Estate Investing

Updated over 11 years ago, 06/24/2013

54
Posts: 35
Votes

Dave MadochPoster

Chicago, IL

Buying & Selling Real Estate

Refi Advice?

Dave MadochPoster

Chicago, IL

Posted June 23, 2013 09:46

In about 1 year we plan on moving out of state and rent out our house. I would like any input on if it is worth trying to refi. We have lived in our house for 3 years and purchased it for $265k with a FHA loan. Our current principal is at $250 and rate of 4.875% (with 2 more years of $112/month PMI to pay). I am only guessing at our current value of $290k but would need to get an appraisal. My question is is it worth trying to refinance right now to try and get my payments down or should I wait a couple years and if I wait a couple years will I need to tell my mortgage guy that it is now a rental property? I think I can get $1800 rent per month and all in (P&I, homeowners, flood, taxes) my payments are $1830/month. Any input would be greatly appreciated
thanks
Dave

0 Votes

6 Replies

Jump to Last Reply

Sort By:

Oldest

Loading replies...

Your Profile Views

Curious to see who's interested in your profile? Unlock your views with Pro

Connect with others

7 day free trial. Cancel anytime.

PRO

Upgrade to Pro

Market Finder - key investor metrics for all US markets

Deal Finder - investor-focused filters and notifications for new properties

Calculators - Unlimited access to 9+ property analysis calculators

Find an Agent

Find & Match With an Investment Friendly Real Estate Agent

Enter your market to get started

Rent Estimator

Address or ZIP

loading related articles...