Refinance - then turn the house into a rental question

[Loretta Williams-Sikes]

Hi, Folks.  I've been following for awhile, but this year is going to be a year of action.  Just to start out, I have a question on rental strategy.  My husband and I bought 40 acres in East Texas - nothing on it yet.  We currently live in Central Texas.  Our house of 13 years is probably worth around $200K, and we owe less the $100K on it.  We're thinking about refinancing to get out some of the cash equity to build on the 40 acres, and then renting the house to bring in monthly cash flow.  It would definitely have to be a good balance on the numbers.  I'm curious what any of you seasoned investors thought about this strategy.  Thanks in advance!

[Thomas S.]

SFH rentals are not the greatest at cash flow due to high per tenant maintenance costs. To know if this is a good investment or not depends on the rental market. You will need to be able to get rent in the area of approximately $1800 or more a month to make it a worthwhile investment as a rental.

You need to pull as much equity as possible out of the property and still have positive cash flow in order to realise maximum return. Dead equity in a rental kills cash flow due to it's opportunity value.