Hey everyone. First I'd like to say that I enjoy reading this forum and as a wannabe investor I have found the community useful.
Some background on me before I get into my plan...
I am 29 and I have been in the real estate business for 6 years. I worked as an agent out of college and two years ago switched to a property management company where I draw an hourly wage on top of some leasing and sales commissions. (I'm in a pretty good spot, finally).
I have zero savings but plan on saving 10% of every paycheck from here on out to use as a cushion. I also bought a house in 2009 where my dad cosigned on the loan for me. It is a 2br 1 bath in a good neighborhood where home values are pretty high and steady. I paid 105k and did some rehab using a construction loan then wrapped it all back into one loan. So I have about 130k into the house. My loan balance this past month was 119k. I had been mulling over selling and buying a bigger house to take advantage of the market...or doing a refi and getting my payment down. In talking to a lender recently, we recognized that because I closed in March 2009 I qualified for that FHA "streamline" or whatever it is called that allows me to refi with no appraisal and very little closing costs. By doing this my rate drops from 5% to 3.25 and my mortgage payment goes from $830 to $650. My estimated cash at closing is around $550. I decided to go this route (seems like a no brainer) and spend the next several months to a year saving and building my "cushion".
Because I am getting my payment down substantially, it SEEMS that I could take a decent stab at eventually renting this house and then finding another deal where I can owner occupy (buy-hold) and do the same thing. Maybe even find a duplex to move into as an owner occupant. My worry is this- everywhere I read I read that you make your money when you buy. In 2009 I was green and did not have the investor mentality that I have now. When I bought the house it was not necessarily so that I could rent it later. I don't think I'd have a problem selling it and breaking even, but I think it'd be wise to hold out longer until the market rebounds (plus I have this house already and I am in the process of getting the payment down so much, I just feel like I can work with this instead of starting over). I'm just nervous about taking the risk of renting it when I didn't go into the purchase with that in mind. I've played around with some of the spreadsheets on here and read a lot about the rules of thumb. At my current tax rate of 4% I would cash flow about $250 assuming a $900 rent amt. That is without taking into consideration damages and such, so if I read closely enough on this forum, I need to expect about half of that cash flow to go towards expenses. (is that right?). Now, the biggest worry for me, then "non legal residence" tax increase. In South Carolina, when I am no longer the legal resident my tax rate goes from 4 to 6%...which according to my county tax estimate calculator would catapult my taxes from around $700 (what I'm paying now) to $2,800 a year. !!!...That's $230 a month I have to account for. So there goes my cash flow.
So I guess my questions are...do any of you in South Carolina (or anywhere else for that matter) have any experience turning your primary into a rental? Does the scenario above scare you as a seasoned investor? Is there an alternative to getting absolutely crushed on these taxes that I am missing? Should I save for a while, sell and use the cash out to make a better investment? (I am ready to get started with my investment career and waiting a year or two to do anything will drive me crazy). Advice? Opinions? Anything above not make sense? I am just trying to learn and explore all options. Thank you so much for taking the time to hear me out.
