New Investor Question

[Joshua Peglow]

I have what is, to me, a difficult new investor question. Six years ago I went through a divorce and my parents helped me out by buying a house in their name but letting me have the equity. I am going to give them 25k as a thank you if I sell. This is my question:

The loan is a 30 year 3.85%. I owe 183k and it’s worth 375. My new wife and I would like to invest in buy and hold real estate. Should I buy the house from my parents to put it in my name so that I can take the equity out? I don’t love the house and I wouldn’t mind selling but it would require most of the equity as a down payment on the next place (since we would want to upgrade). 
We are considering staying where we are and enjoying our cheap mortgage so that we can put more money aside for investing but then we don’t have access to the equity. Alternatively, we could buy another more expensive house with the lower down payment that a live in home requires and buy this one as an investment so that the 20% down goes to the cheaper house. 
It’s kind of an opportunity cost question because I don’t know how good of a rental it would be. It only has one bathroom and it’s difficult to add one. 
We have about 65k set aside to invest but we live in a HCOL. Really benefiting from the group knowledge here. Any suggestions? 

[Ryan A.]

Joshua 

Making some assumptions here, but here goes. You didnt say what kind of home you have, I will assume its a SFH. If you dont have any children (just two adults) and you are serious about investing, you will downsize and house hack a multi-unit.

You said the current home is not in your name so you will qualify for FHA on a new purchase of a multi unit, and the down payment will be minimal. I looked in your area and saw this 2 fam (3205 Preble St) @ 325k. Assuming 10% down, you will have ~30k leftover. You may need 10k to get the new house ready for rent. Rents are about 1100, which pays half the mortgage. Assuming you are both working, you should be able to continue saving.

You will still have cash in your pockets and you will have flexibility to try and rent the current home for additional cashflow, or simply sell outright and get more capital to add to your stash. Not to mention paying your parents back. Who knows, if they are as charitable as they seem they may even decide to loan some back to you for your next venture.

You didnt say what your long term goal is (holding vs flipping etc) but I think you have a good foundation to kick something off real soon.

Good luck and dont forget to come back and update us.