To landord or not to landlord; that is the question.

[Matt Kammeraad]

Hello everyone,

I'm on the fence with this investment decision since it is life changing! I'll try to fill you in with as many pertinent details as possible. I currently own a 3 br 1 ba house in Holland, MI. It's cute, well maintained, and close to Lake Michigan (decent perks for this area). I bought the house as a foreclosure for $63k and stuck about $10k into it. Today, it's worth about $120k, as in I could sell it within a week for at least that. I have one roommate, who pays $400/mo for rent. My mortgage (PITI) is only $421/mo. I owe approx. $45k yet. Great, right?

I'm looking at moving into a newer, larger house. The market is a sellers market, but there are quite a few nice houses out there for a reasonable price. The one I've fell in love with is a 3 br 2 ba house and is listed for $164,900. There are multiple offers on it, which all will be reviewed this Wednesday. In order to have a chance to get this property, I think I need to offer $170k.

Here's the dilemma... I want to keep my current house as a rental property. I can potentially rent it for $1,000/mo (no utilities included) minus $600 (PITI), which gives me a net monthly income of about $300. That also includes non-homestead property taxes, and 10% maintenance.

Then I can only afford to put down 5% towards the purchase of the new house. That leaves me with another mortgage (PITI) of about $1,100 (4.25%, PMI included). I will bring my current roommate with me and charge him $450/mo (utilities included).

So, assuming I can get the first property rented, and my roommate doesn't move out, my net monthly payment is $250. I'm gaining equity in two properties worth a total of $300k, and I'm living in a newer kick-a** house.

I'm cautious about making this decision because I will not be able to afford the two houses if I can't rent the first house. I would be about $400/mo short. Then, if my roommate moves out, I would be $850/mo short. Another alternative would be to sell the first property and put the profit towards the new house.

I know, "big risk, big reward" but I'm afraid to make the jump. Any words of advice? Thanks!

Matt