Sell or Hold my 1st owner-occupied property in Round Rock TX?

Question

Hi all. I'm new to investing. Bought my first home, built 2018 in Round Rock TX (AUSTIN  area). My intention was to buy, live in for one year, buy second home and rent this one. And continue until I could no longer use FHA loans (only use USDA once). I thought by going with USDA loan I would save money by not having to put much down on it. However, my mortgage payment is more than I could feasibly rent it for at this time and is not in cash flow situation.

In the near future I could probably rent out for the same amount my mortgage is and break even. My hope is that it will eventually cash flow because 2 miles from Kalahari Resort set to open Nov 2020 and other new developments in my area.

I'm not sure if I should just sell and start over with FHA loan or be patient and see how market goes. I got the MCC program, too. So, if I sell before 9 years, I'll have to pay capital gains.

I feel stuck here because I'm having difficulty saving up for next house. This home is also in HOA subdivision which I really wanted to avoid, but my real estate agent said this would be a great investment property. So, i trusted her.

Getting into real estate investing is my plan for retirement and giving to my children when I'm gone. I'm 46 years old already and I don't feel like I'm off to a very good start.

What are your expert opinions? What would you do, as an investor, in my situation?

Thank you for reading.

Alissa

David Ivy · Answer

@Alissa Rodman

You are correct that, by going with the USDA loan, you "saved" on the down payment. However, that came at the cost of starting with little to no equity in the property and shouldering a more substantial monthly payment. Were you aware that the property wouldn't cash flow at purchase with the current market rent? If not, then you needed to perform better due diligence. If so, then it was quite a risky bet to hope that rents would increase enough in just a year. How close are you currently to having market rent cover your montly PITI + HOA payment? Unless your property increased in value substantially over the year you've owned it, selling will probably mean taking a loss once you pay your Realtor and other closing costs.

Kris Wong · Answer

This question gets asked a lot. What would you be gaining by holding the property? Negative cash flow and maybe some appreciation down the road? Hopefully break even soon? Would you buy this property today only as an investment (I certainly wouldn't)? Don't keep your limited capital tied up in a bad investment. Put that money to work for you in a cash flow generating asset. You learned a hard lesson by letting someone else tell you what is a good investment, but now you know that you need to make that determination for yourself in the future.

Alissa Rodman · Answer

@Todd Goedeke, they rent for about $25- $40 per night.

Todd Goedeke · Answer

What are homes in your neighborhood leasing for as a STVR?

Aaron Gordy · Answer

@Alissa Rodman I am going to chime in here too. I think that holding on to it is sound advice. You are in the path of progress. Hold tight. You might even be able to profit off it as a short term rental, in between tenants given the Kalahari resort, the baseball events nearby and the even bigger baseball events in nearby hutto. I wouldn't consider it as a long term str though. I wouldn't do it. It seems too risky to me. Have you thought about house hacking? In other words, renting out some of the bedrooms to create income to offset or at least partially offset your expenses. Housing in the metro is expensive for many folks so I am quite positive that you could find some good non-partying student to pay rent.

Alissa Rodman · Answer

@MarianSmith Thank you so much for your reply. I think staying put is what I'll do. With this home being a new build, problems and repairs shouldn't be an issue for several years.

There is a house across the street from me that is same floorplan as mine that is for lease. They are asking $1625/month.

This is the first house I have ever bought. I think in 20 years I  would regret selling it. So. I plan to keep it.

Thanks again!

Alissa

Alissa Rodman · Answer

Thank you all for your expert opinions. I appreciate you taking the time to comment on my post.

I have thought about refinancing so payments can be lower, but if I want to purchase second property fairly soon I'm not sure getting into refi situation would be wise.

I think I'll just stay put until I figure out what my next move will be.

@Davidivy, my original loan is $208,287. I now owe $203,600. Monthly mortgage payments are $1,656. I may be able to rent for $1,550. Home is one story, 1,440 sq ft.

Alissa

Dante Feria · Answer

I suggest checking your financials first listing down your assets and liabilities. This will help compute your your debt to income (DTI) ratio , which are used by lenders to qualify you for a loan . Even if you have a good credit score banks may not approve you for another loan. The ratio should be less than 40% or better. If you have a car loan or any monthly payments other than your mortgage that will hurt your DTI. You need to get rid of all those monthly payments to position yourself  to get another loan. While doing this , you want to save as much money for a  25% down payment for another property or sell your existing home and do a house hack by buying a duplex , triplex or quadplex with an FHA loan and living in one of the units. That is how I got started when I was about your age ,  its not easy but doable and now have 6 rental units .

Tchaka Owen · Answer

@Alissa Rodman - my suggestion is that you don't do anything....yet. Spend the next 4-6 months reading as much as you can on BP and listening to a bunch of podcasts. This will get your mind in tune with investing and perhaps some aspect of REI will pique your interest. Even if you stay with buy-and-hold, you'll get lots of good info.

IMO, what you did was what I consider a 'regular person investing'. That's when someone buys a house and figures they'll rent it one day and then they find out that cash flow isn't what's expected, etc, etc. The difference is that after a lot of BP research, you'll know exactly what to do with the next purchase. You'll also likely have ideas on what to do with the current home. For now, learn learn learn!

Sell or Hold my 1st owner-occupied property in Round Rock TX?

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