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

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

Matt Kammeraad
Holland, MI · Member since 2013 · 3 posts · 0 votes

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

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  • Matt Cramer
    Residential Real Estate Agent · Rochester, MI · Member since 2012 · 152 posts · 52 votes
    11y

    Sell your other house to buy this one if you love it. Otherwise wait a bit and look for another deal like this one where you get the equity. IF  you don't have the cash reserves I would say sell. Because if something goes wrong you could be renting an apartment with a foreclosure/short sale on your record. To me that risk isn't worth the reward. That is a gamble. Something bad could happen to the house, tenants could stop paying, trash it etc. It sounds like one bad experience could put you out and that's too much risk imo. I know the market is hot here and if you have a good agent you should be able to find another deal. I would be patient and wait for the other deal and purchase that with the proceeds from your first success. 

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  • James De Silva
    Real Estate Investor · Berkley, MI · Member since 2014 · 52 posts · 14 votes
    11y

    I tend to err on the side of risk, but I'd go ahead with your strategy of renting it out. Selling when the market has little chance of downside, but pretty good chance of significant upside is a touch decision.

    Talk to a good property manager in the area and get him to show you that he could easily rent out your house (if he has records of people asking for rentals in your area, he will be able to easily get you a tenant). He can also give you a realistic idea of how much.

    You can also take out insurance for fire damage, loss of rents etc on a temporary basis to again mitigate risk. It'll eat into your cashflow, but at least it'll only be for hopefully a few months till you build up reserves.

    Finally if something does go wrong, do you have friends, family who could bail you out for a couple of months?

    Just my 2c! Measured risks.

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  • Matt Kammeraad
    OP
    Holland, MI · Member since 2013 · 3 posts · 0 votes
    11y

    Hey guys,

    I ended up not going through with the deal. I will be in a better position once I have a reserve of cash for my rental property. I can then use this cash in case of an "emergency" such as a new A/C unit, renters don't pay, can't find a renter, they trash the place, etc.

    The last things I want to do are borrow money from friends and family, rack up credit card debt, or hastily sell the house.

    Thanks for the advice.

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