Transitioning from an owner-occupied to a rental

[Melissa H.]

Hi everyone!

I am very new to the real estate investment/landlord game. Here is my situation, any advice and/or opinions gladly welcomed.

I own a 2+bed home w/ 1.25 acres in a rural area of Washington state. I just refinanced at 5.25% for 30 years (no equity pulled, just lowered the interest rate). My PITI payments are $1033/mo. The home is mortgaged for 145,000 and it is very likely that that is all that it is valued at (FHA refi streamline so no appraisal done). While I was still living there, I found a roommate to rent the 2nd bedroom w/ utilities included for $400/mo. It's a very long story but due to work factors, one month after moving in the roommate, I found an apartment to rent in the Seattle area and have moved up there. I still have a lot of belongings at the house, including a couple of foster cats and return once weekly to care for them/go through belongings/etc. After moving to the apt., I cancelled the internet at the house and had the tenant get his own home phone service. The home has a well and I am still paying for electricity/garbage. I have not raised the rent on the tenant and he has been helping clean up the house of his own accord.

Now here is my plan, tell me if I am crazy. The home needs a host of minor repairs and needs to have a closet and connecting wall replaced due to water damage. Repairs/yard clean-up will likely cost about $5-8K. These things need to be done before I can sell the place or rent it out in its entirety. It can be difficult to get reliable rent-by-the-room tenants in that area so I don't want to run out my current tenant until I have the place ready to rent out in entirety. I estimate that it will take me about a year to afford and get done all of the necessary repairs.

I would like to keep going down weekly until I can find a new home for the cats and have condensed all my belongings. Estimate 6mo or less for this. After that point, I want to ask my tenant to take over all utilities (anywhere from $60-220/mo depending on the season). In one year or whenever the property is in a condition to rent out in entirety, I want to raise the rent to market value for the house which I anticipate to be $1100-$1300. I would allow him to add roommates (potentially 2 other bedrooms to rent out besides his own) as long as they go through the same screening process and are added to the lease. At this point, if he wants to leave, I would be able to advertise for a new family at the market value.

I know that in the meantime I am taking a huge loss on the property, but I can afford the mortgage on the house and the rent on my apartment simultaneously and I really don't want to nor can afford to sell the property. Also, I am working on building savings so I do not have a lump sum of cash to do all the repairs at once in order to be able to market the house in its entirety.

Does this sound like a reasonable plan or am I crazy? After the house is renting at market value, I will be making $100-300/mo over PITI to put into a repair fund as well as have $800/mo more in the budget than I am currently paying now with carrying the mortgage + apt. rent. I plan on then hopefully quickly building a repair/expenses fund for the home to cushion me. Not sure yet if I will eventually sell the property once the housing market improves or if I will keep it as a long-term rental investment. Probably depends a bit on the market and on my experiences as a landlord!

Thanks!