Advice on Buying a 3rd House for a Live In Guest Suite Short Term Rental

[Connor Umfleet]

I'm hoping someone can give me advice on whether or not purchasing a 3rd home to do a guest suite rental would be a good idea, given our current situation.

My husband and I own two houses: One in Vancouver WA and one in Dundee OR. We currently live in the Dundee home and rent out the Vancouver house. Some details on these:

Vancouver WA

Purchase Price: 335k

Down Payment: 18k

Interest: 3.25%

First Payment: 9/15/2020; 30 Year Mortgage

Mortgage Payment: ~1,800.00

Current Balance 06/15/2023: 279k

Size: 1600Sq Ft

Monthly Rent: 2,275.00/Month Long Term Rental

We have rented this home out consistently since Nov 2021 for 2,275.00/month. We lived in it for 1.5 years prior to that.

Dundee OR

Purchase Price: 459k

Down Payment: 25k

Interest: 2.99%

First Payment: 9/15/2021; 30 Year Mortgage

Mortgage Payment: ~2,185.00

Current Balance 06/15/2023: 417k

Size: 1600Sq Ft

Monthly Rent Potential: 4,000.00/Month Short Term Rental

We live in this house and have made some great improvements to the house and backyard. It has a great space for hosting and we believe it would be a great short term rental, considering it's in the heart of Dundee nearby many vineyards and tasting rooms. Homes around the area with similar size and location have rented out for $300 on average, if not more. AirDNA says 400 per night with vacancy rate of 49%.

New Dundee OR

There is a house for sale in Dundee that I could be a envision living in and renting out the downstairs as a "Guest Suite" as a short term rental. The house has a staircase leading to a lower level with a kitchen, bedroom, large living area, bathroom and even a Sauna. Our idea is to live in the upper level and rent out the lower level (est. 2,000 per month). We would move out of the old Dundee home and rent it out as a short term rental where we estimate around $4,000 per month. In addition, my partner and I both have good paying jobs ($91k and $73k) and live a fairly moderate lifestyle. Here are some details of the house:

Purchase Price: 830k

Potential Down Payment: 50k

Potential Interest: 7.00%

First Payment: Sep 2023; 30 Year Mortgage

Mortgage Payment Estimate: ~6,000.00

Size: 3,300 Sq Ft; Lower level might be about 1,000 Sq Ft with a good size yard.

Monthly Rent Potential: 2,000.00/Month Short Term Rental (150 average per night, 49% vacancy rate)

The Question: 

With all that said, is this a smart choice financially? We would be happier in the new house, and it seems to open us up to more income opportunity and ability to build equity more quickly. I just worry when I see the amount of interest that we will be taking on and wonder if that added interest will put us in a worse spot. Any advice would be appreciated. Let me know if any information is needed. 

[Melissa Hartvigsen]

You are most welcome!

Yes, you followed my response correctly.  Use the earnings from your rental to tackle the high interest rate. 

I think it is smart that you are also putting away money for retirement, so if paying the full 6k isn't feasible, you don't have to put the full 3K toward additional principal. Play with the early mortgage payoff calculator to see what different additional principal payments would do for you.

Question 2: whether to continue scaling or pay off mortgages depends on what your overall goal is.  Have you decided when you want to retire, and how much rental income you want in retirement? If not, I would start with that and work my way back from there. (Vanguard, Etrade, Fidelity, etc have retirement calculators that can help with this).