Getting ready to rent out current property and buy next

[Seth Moffett]

Hello everyone! We would like to know what you think and what’s your advise for us who are barely starting in this crazy market. Our goal is to buy a property that we can live for free by house hacking. Then save up and learn more about investing to explore other markets that have better deals for cash flow.

We bought a property in August 2020 where we are currently living. We need some opinions on our calculations as well as if there are better formulas/rules you use to analyze your deals and calculate cash flow:

- Purchase price: $265k

- Down payment: 5%

- Interest rate: 3% (fixed rate conventional loan)

- Renovations: 6k

- Estimated current value: 335k

Cash flow numbers:

- Mortgage/insurance/tax: $1,249.86

- Landlord insurance(estimated with our homeowners policy): $15.83

- HOA: $148

RENT: $1,550

- Cash flow without using any formulas or calculating repairs: $136.31

- Cash flow applying 50% rule: -$286

- it doesn’t meet the 1% rule

HOA covers pretty much everything outside the home so, maintenance costs would also be less(big ones would be HVAC, water heater, and appliances).

If we use these rules, we wouldn’t be cash flowing but appreciation is good.

How would you calculate this property? Would you sell and use the gains to buy a property that you could live for free and that actually cash flows?

We really appreciate your help and knowledge!

[Tim Herman]

@Seth Moffett Let's look at it as a brand new purchase. Would you buy it with 80k down payment to lose $256 a month. You are counting on appreciation and mortgage paydown. How about a stress test. Assume you get a tenant that can't be evicted. How long can you feed the $1400 negative cash flow.