Potential Real Estate Investment Opportunity

[Michael S.]

Hi everyone,

First, I want to say thanks for taking the time to read my post, and I appreciate any advice you can offer.

I currently own a townhouse that was purchased during the peak. We have lived in it as our primary residence for about 5 years. Instead of selling the townhouse now, and taking a loss ($35k less than we paid for it), we have decided to refinance and live here for a bit longer. I'm thinking about the future and the potential to turn it into a long-term rental, or go with a lease option.

If I decided to turn this into a rental, do you think I would be better off putting an extra $10,000 - $20,000 now during the refinance so that my monthly cash-flow would be greater? Otherwise, without that extra cash down, renting it during the low market would have me breaking even each month or MAYBE gaining $50 each month. I realize the additional benefits of gaining equity, tax deductions, and appreciation, but it just seems rough to break even on the rental. Putting down an additional $10,000-$20,000 upfront on the rental seems like a bit much though for a $100-$200 per month gain. When the market starts to come back I know I'll be able to increase the monthly rental income. Should I just rent to break even for a few years until the market turns around a bit?

The refinance is another 30-year fixed (we have about 25 years left on the current mortgage), which reduces our monthly payment by about $400 per month. This is what would allow us to break even. I have read that it makes sense to go with a 30-year if your plan is to rent.

If I went with a lease option, I realize I could take an initial payment and increase the rent slightly, but would I be making a mistake potentially selling the house after 2-3 years in only a slightly better market? I realize that most folks don't actually follow through with the purchase option, but I think I'd rather start to build a portfolio of homes and bring in some monthly income long-term.

I'd like to get involved with real estate investment, and this feels like an opportunity to turn a loss into a long-term gain, while kickstarting my investment career. I do work full-time and plan to continue that while getting involved with real estate on the side.

Hopefully that makes some sense, I can clarify anything that might seem confusing.

Mike