Rental property opinions needed!

[Travis Silva]

So I posted a while back about renting out my home with negative cashflow, and potential for a much higher equity gain YoY. I got quite a few responses, with most leaning towards the idea that negative cashflow is never a good idea. Figured this time, I would pull some numbers and pose a refi scenario -

Total Mortgage (w/PMI) + Insurance + Prop Tax = $1670/mo

HOA dues = $113/mo

Total = $1783/mo

Estimated rental based on others in the neighborhood = $1650/mo

Negative delta = - $133/mo

Based on my ownership since June 2018 (roughly 16 months), and looking at multiple recent comps in the neighborhood that have recently sold, the average equity growth is roughly +$16k ($1k/month).

Current interest rate is 4.75%. I've pulled the numbers of refinancing at a 3.75% rate (current market rate), and that saves me about $173/mo overall, putting me at +$40. I also should be about a year out (maybe less) from having 20% equity in the home and being able to drop PMI, which would add +$71, thus putting me more in the positive at +$111/mo

The area sees steady growth, very populated, 5 miles from RDU international airport, tons of shopping, etc. I've spoken to an agent and a mortgage broker that I know, and they don't foresee any downswing in the Raleigh market in the near future (I know....Anything can happen....). I will also not be hiring a PM company, as our new home would only be about 20 minutes away.

Looking for thoughts/input on this overall plan. Any advice/criticism is much appreciated!

[Andrew S.]

I don't have a problem with banking on appreciation - I think the downside risk here in Raleigh is pretty small.  That said, even if your maintenance and capex costs are relatively low right now, they will NOT be zero and you would be well advised to plan for SOME expenses.  You WILL also have turnovers (i.e. vacancies) that require some degree of investment (re-paint, carpet,fire alarms, light bulbs, etc, etc) and while the vacancies may be short, its not easy to turn over a unit with ZERO downtime.

Regarding your planned refi, I assume your 3.75% 30-year is based on an owner occupied mortgage? Even if you still live there at the moment, your INTENT clearly is to use this as a rental, so be careful about not running into mortgage fraud traps. Also be aware that many mortgage products may not let you drop PMI anymore without yet another refinance or at least reworking (for a fee) the current mortgage. Check the fine print.