Need some guidance...

[Shawn Wilson]

Here's my current situation...we have a home that we lived in for over a decade. It's worth $255k and we owe $140k. Monthly mortgage (escrow included) is $1188. Great interest rate of 3.25% and it's in a wonderful area with great schools. Average rent in our neighborhood for our home is $1650-$1750. We just bought another home which we moved into which is in the same neighborhood but is a little larger and has a pool. We are fixing up the first home (new flooring, a/c, paint) and should have it leased quickly. We have zero debt except the mortgages and roughly $20k in cash available. Is there a better option for going forward as an investor? I just recently got on this site and have been overwhelmed with all of the new information and investment tactics. I plan on reading everything I can get my hands on but welcome any and all comments here. Thanks in advance for your time and help.

[Edward B.]

@Shawn Wilson,

That is an unbelievably open ended question. Yes there are better ways, but what are they depends largely on you and your situation. Personally, I think you are doing great by having cleared the first major hurdle that holds most people back, acquiring that first investment property. I would roll with what you got for now to see if this is for you. Landlording can be a nerve racking experience and is not for everyone, even if you have a property manager in place.

Looks like you have an OK investment property there but not great. On most months you will cash flow nicely but in the long run you will notice a lot of your cash flow getting eaten up by things like vacancy and capital expenditures. Things that don't occur month to month but will come back to bite you if you don't plan/budget for them. If the house is in good shape and you are putting the money into it now, you may be able to keep your CapEx and Maintenance costs down for the near future.

Without knowing anything else about you and your situation I would say hold on to this property for now. I am guessing that because the LTV is so low you have paid it down for a while which means that much bigger chunks of your mortgage payment is going toward principle. That means this will perform better as an investment but not necessarily for cash flow. You can let someone else pay your mortgage for at least the next three years and enjoy that principle pay down and any appreciation and still sell the property with no capital gains tax if you have lived in it for the last two. Consult an accountant because it is more complicated than that if you rent it out but it largely works that way.

In terms of moving forward, I would look to take a HELOC out on the first house. It will be more difficult now that it is an investment property but you should still be able to go to 65%-75% Combined LTV. You will have to shop around, maybe local credit unions or banks but they are out there. That would give you another $25k-$50k to play with. I typically recommend using HELOCs for fix and flips or BRRRR properties so that you can use the money over and over again. If you just use it for down payments you will quickly get tapped out on funds again. They are also great as a source of reserves as long as you have a plan to quickly pay them off if you pull money off of them.

Keep educating yourself and you will figure it out, but again you are light years ahead of many would be investors because you have already taken the leap. If you like it, things will snowball from here. Good luck.