First rental question

[David Luna]

I have an exiting single family home (currently live in) that I am considering converting into my first rental (plan to purchase new home for me and my family to live in). These are the facts:

- My neighborhood has average rents of $1,400 - $1,450 (using $1,400 to be conservative). SAN ANTONIO, TX AREA

- Current mortgage payment = $1,150 ($111,000 left for 22 more years - 5% rate. County assessed value = $170K)

- Monthly Expenses calculated: HOA $30; $210 for repairs, cap ex, and vacancy (using 5% of gross rents for each or $70 each); Property Management $140 (10% of gross rents estimated); and Current mortgage payment of $1,150 which INCLUDES taxes and insurance). TOTAL EXPENSES = $1,530 (Plan to have tenant pay for utilities).

- Monthly Cash Flow = -$130

With an estimated negative cash flow, should I not be considering this home as my first rental? I know I could refinance this current note back to a 30 year mortgage to reduce the monthly PITI payment, but considering that I have almost $60K in equity, is this a wise move?

Any thoughts on the above situation? Or anything I may have made an error on regarding the above information?

Thank you.

[Brooke Noth]

David, 

I agree with Jaime. You have a few options. You could refinance to get rid of MI and lower your payment. That should improve your numbers quite a bit. What's your appreciation rate per year for your property? That should also be included in your numbers for long term hold. You could also HELOC to tap into the equity in the future.

Hope this helps! Let me know if you have any other questions. 

-Brooke