what to do with my current house.

Question

Next year my wife and i are going to be buying a duplex to do the ever so popular house hack.  We are currently living in our first home purchase.  We owe about 209k on this house and the mortgage is a little over 1200 a month.  The house is in good shape and shouldn't need any cap ex upgrades for at least 5 years.  I'm stuck on what to do with it though.  We have about 100k in equity.  We could conservatively rent this house out for $1800.  So my one option would be to rent it out.  Start with a 5-10k reserve account and just put all extra cash after mortgage back into that account.  Our market is appreciating quite nicely and I strongly feel that this could be a good long term property.  But on the other hand I'm not sure if i am just emotionally attached to this property.  I could sell it and use what's left after real estate commission to put towards other property investments and use part of it to pay off a private loan i have.  With house hacking and getting rid of this private loan i could easily reduce my monthly expenses by about 1500.  Then i would have more monthly cash savings to put toward more properties. My wife and i are good with money and currently have a pretty high savings rate.  Any insight would be much appreciated.

Mike Dymski · Answer

Run the numbers.  Compare the investment return (cash flow, principal reduction, appreciation) on your existing house with alternative investment options.  Your answer lies in financial analysis (average annual return, IRR).

Vaibhav Puranik · Answer

I have done this twice in my life. Twice I have moved to a bigger house and kept the older houses as rental. It works well in your case as it's an appreciating asset that's cash flow positive. If you can afford to buy the Duplex without needing to sell this house, then it's worth keeping it. If you don't have other houses, this house will also give you some property management experience. It's always great to know the house well when you are doing property management yourself.

Ganessan P. · Answer

I am new to this, but i have learnt ( reading books and podcast ) is ... Keep the primary ( since its appreciating it ) and rent it out, and at the same time pull out the equity as HELOC . You can use the $$$ from the HELOC to put down as down payment in your next property.

Ibrahim Yamini · Answer

I will say this first.  I am very new to investing and have no experience but this is just my initial thought.  I understand being emotionally attached, but you already have an appreciating asset.  If you can get some tenants to pay off your first house for you, why not?  You already own it, and don't need to jump through hoops getting deals together and such.

I'm assuming that since you already live there, you don't have to rehab it so it's already move-in ready.  I personally wouldn't want my tenants to know where I live because that can become bothersome later on, but that's just me.

This is just my opinion, you're at the new property doing the house hack and now you have other tenants cash flowing your old property?  Sounds like a win-win to me.  I don't know your area, but using the four square method, charging $1800 a month seems too conservative if you haven't calculated taxes, insurance, HOA fees, etc. cap ex, future maintenance costs etc.

Unfortunately, I can't give you an accurate estimate because I don't have enough information, but right off the bat, it looks like you will surpass a 10% ROI with your primary residence which is always good.  Even if you're only cash flowing 50 dollars a month after expenses, the tenants are STILL paying YOUR mortgage.  Just my opinion, but like I said, I'm fairly new and I don't ever plan on selling my first property.

Zachary Ray · Answer

I am actually in a similar situation however my single family is out of state and i'm currently renting it out. I am house hacking a duplex at the moment as well. You do have a ton of equity in the house which is great. It gives you options but it is up to your long term strategy. You can borrow the equity and make a purchase with that if you choose. If you lived in the unit 2 out of the 5 years you can save on capital gains tax if you choose to sell. Or just keep as is and let the tenant pay it down until you have a bigger chunk to do all the above.

Jason Wray · Answer

Joshua,

You could always do a cash out refinance and take out some cash while lowering your current rate.  Depending on your rate and current situation you could potentially take the cash out and not see to much of a payment increase.  That cash could sit in an interest bearing account until you find the Duplex.  The cash can serve a few purposes one for liquid cash required by the lender for PITI (6) months reserves, Additional cash for Renovations, DP etc.  Rent the house until you are ready to sell so that the renters are paying down the mortgage and the recent cash borrowed.  This will help you evaluate your market and have the first home cash flowing or at least paying the PITI payment.

Joshua Norwood · Answer

@Vaibhav Puranik

We will have enough to get into the next house with money left over for reserves.

what to do with my current house.

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