Stressing over what to do next

[Quan Pham]

Hi all,

I'm in quite (to me) a difficult situation and looking for some insights.

I'm buying a new house $1.2m @7.2% interest, and my current house is worth ~$780k @3% interest. I've managed to secure the loan for the new house without having to sell the old house first. Now I can't decide what to do next.

1. I could sell the house and pocket ~$360k (after the tremendous agent commissions T_T ). I can then put that back into the stock investments that I sold to make down payment for the new house with some left over. The left over would cover the difference in monthly payment for about 2 years. Then my passive income would solely come from stock investment.

2. I could keep the house and try to rent it out. Rent analysis is around $3400-3500/m which will net me $1200-1300 cash flow if self-managed. I picked up the book " The Book on Managing Rental Properties" and it both clarifies and scares me. I'm the single breadwinner for my family (2 kids) so I don't know if I'd have the time and energy to both run this rental and manage my work so I can reach the income level to handle the bigger mortgage comfortably.

I feel like this chance for us to have a rental property with positive cash flow won't come often so I really want to explore it. Is it a viable option and what could I do to increase my success rate when taking this opportunity?

Thanks.

[Patricia Steiner]

First of all, what a great problem to have!  Congrats on having an option.  A few questions:

1.  Are you quoting net cash flow - after taxes, insurance, maintenance/repairs, property management if needed?  I often have new investors tout cash flow without considering all the cash offsets and, as such, what might seem like a great deal is really not so great.

2.  Is this really the property that is best suited for you as investor at this point. Would you be better off selling and purchasing a less expensive property that would require less carry should it become vacant for some period of time?

3.  Do you want to be a landlord?  Are you qualified to do so right now - have the contracts, inspection criteria set, screening, payment collection in place?  This isn't the stuff of mere mortals.  It's running a business NOT renting a house.  

I would encourage you to do a deeper dig on the financials and take your own skill inventory in making this important wealth impacting decision.