Renting First Home, Buying Second

[Thomas S.]

Hello,

I am planning for the future and looking for some advice. I bought a small 2 bedroom 1 bath home almost 1 year ago for $55k. I put 3% down on it. My current house payment is $395 and I could rent it for at least $700. I am trying to decide on what to do with it in a couple of years when my wife and I decide to have kids. We make a little over $100k together and have good credit scores. It would be a great rental property and I want to keep it. I am worried that in two or three years I won’t have enough in savings to put 20% down on a bigger home. I got a good deal on this house and similar homes in the area are selling for around $80k. We have made some small upgrades to the property and I plan do more. So my question is should I sell it and use the profits to invest in my next home and hopefully more rentals later on or are there options for loans with less than 20% down payment if you already own one?

Thanks!

[Nathan Gesner]

The only reason you're not moving forward is that you're not living on a budget.

A minimum budget recommends you save 10% of everything earned, which is $833 a month. In two years you would save enough for a 20% downpayment.

You make $100,000 and your house payment is only $390, which is less than 5% of your income. Most budgets allow for 25-30% for housing, so you have a lot of room to play. If you were living on a wise budget, you would set aside the normal 10% ($833) and the 20% you're not spending on housing ($1,666). This is a monthly savings of $2,500 which means you would save $25,000 in ten months and buy an investment property every year.

You're holding yourself back by not demonstrating discipline. Read "The Richest Man In Babylon" free on the internet. Read "Total Money Makeover" by Dave Ramsey or "Set For Life" by Scott Trench and learn how to get on a budget. Live like no one else today so you can live like no one else tomorrow. If you make the sacrifice, you'll reap the rewards. Without any increase in income and being a minimalist investor, you could own ten houses in less than ten years. If you save up the cash flow from your investments and invest that as well, you could easily have 20+ rentals in ten years and never have to work again.