Might be buying a second home, is this a good idea?

[Allende Hernandez]

Hi all,

Question:

We (me, wife, 3 yrs old son) have a home in Miami, FL. We bought it in 2010 for 200K with a 30 years loan, three years ago we decided to refinance with a 15 years loan. Given the lower interest my mortgage pmt went up just around $200, which made sense to us. Our main drivers were: Son being in almost college age by then and us being close to retirement, so having a paid off house, is a nice thing.

Now, we have family coming to live with us temporarily(not sure how long though) so we are considering buying a bigger house as one option. Houses are not as cheap as before, so our target home is now around the $400K.

I am trying to look into this situation not only as a need/(or not) to expand and get a bigger house but also as a good investment opportunity.

Questions here are:

- Does keeping the current house make sense financially...or selling it (Mk Price around $300K or a bit more)

- Is it a good idea to refinance it again back to 30 years to increase cash flow, even when it wont be paid off in 12 years from now?

More insight of the current numbers (considering a 4.5% interest rate for the new loan)

House 1

Monthly payment(PITI+HOA): $1,700/mo

Potential rent: $2,300/mo

Cashflow w/o management company and allowance for repairs(house is in great shape): $600/mo

House 2

Monthly payment(PITI+HOA): $3,964/mo (if offer is accepted but I believe the case study is valid for any other house)

3964

-600 (cashflow)

-1700(mortgage first house)

----------------------

$867 I have to come up extra with every month.

In this particular house there is also a room with bath that could be rented for about $800/mo (efficiency, as we call it down here). My realtor is still finding more info about feasibility and rental prices in the area. If I do rent it, I only have to come up with about $100 extra but it has the inconvenience of having an outsider there.

Taxes and Insurance used for the calculations above are likely to come down. There is no homestead exception applied...but I will also lose it in my current house if I rent it, so ...I'd like to go with the worse case scenario. If everything works out in my favor and they do go down, I might even end up making money off the deal if I rent the "efficiency".

I know this is an extensive post for a possible basic question but as time is limited I wanted to make sure you experts have all the details of the situation and how I am thinking.

If besides of my previous two questions you have any advice/warnings/questions/etc please feel free to let me know.

Thank you in advance!