All Forum Posts by: Cody H.

Thanks everyone for the input - you've given me lots to think about. The more I read, the more I think I should refinance this house and go for cash flow. I think I can refinance this house, pull out $45k in cash and still get 10% cash on cash return. This assumes a rent of $1200/month, 8% vacancy rate and a best guess on insurance, taxes and mortgage rate. I've got some inquiries out to refine the best guess numbers with real numbers.

@Joe Splitrock do you know what kind of tax percentage increase I could expect to see in Minnehaha county for a non-owner occupied house? I'm currently at $2000. My house was built in 2006 and has never been re-assessed. 

Thanks all for the input. Here’s a summarized reply for a little more clarity.

The $1120 monthly payment includes property tax and insurance (escrow), though I realize they would go up slightly if it were non-owner occupied. Unless I’m missing something, I should for sure break even and maybe have a small cash flow if I rent it without refinancing, as long as I managed it myself which is what I’d prefer.

The $10k I mentioned was rainy day money specifically for the rental(s). I've got a separate personal emergency fund along with some money in a 401k and an IRA that I intend to not meddle with.

I lean toward debt aversion, but I’m not afraid of debt if I know that I’m earning more than what the loan is costing me. With only 10 years left, I’m definitely not thrilled about leaving my current home but I want to get my kids into a better school district. The house is also getting a bit cramped for us and frankly my wife and I are just ready for a change of scenery. I’d strongly consider making it work if it weren’t for the school thing, however. My son doesn’t start school for 2 years so we’ve got some time to make a decision.

Good point about known issues with the house. My house is tip-top with a new roof, exterior paint, water heater and new deck all in the past 2 years. I recognize the gamble with buying something else.

I posted my situation here if you guys want to take a look and provide some feedback:

https://www.biggerpockets.com/forums/12/topics/302...

I’m a 37 yr old IT professional, husband and father of two, looking to get into real estate as a long-term investment. I’ve done a flip in the past and it was profitable, but my thoughts keep gravitating toward rentals. I plan to keep my full time job for a steady income and insurance benefits. I currently own a house and am looking at moving my family into something bigger so I need to develop a plan for how to best invest the equity I have in my current house. Your input is greatly appreciated.

Here’s the details:

3 bedroom 2 bath house located in Sioux Falls, SD

Value is about $170k (based on my realtor’s analysis)

$91k remaining balance on the mortgage, 10 years left until payoff

Financed at 3.125% interest

Monthly mortgage payment is $1120 which includes taxes and ins

I’ve got $10k in cash to work with, though I’d rather keep it for a rainy day

I think it will cost me about $17k to sell, so my usable equity will be about $62k

I think I can borrow up to 80% of the value with either a HELOC or a refinance, so my usable equity would be about $45k if I keep the house.

I think my current house would rent for about $1400, but this is a bit of a WAG based off of Zillow and Craigslist housing ads for similar-looking properties

Our new home will likely be in the $250 - $275k range. I’ll need about $13k of my current home’s equity for a 5% down payment on our new home, which leaves me with $49k if I sell or $32k if I refi/heloc.

Does my math look good so far?

I know I'd be stuck paying PMI on our new primary home for a while, but if I can cash flow enough I guess that would be ok.

Here’s the main options that I’m kicking around. I’m definitely open to other ideas.

Option A: Sell my current house and use equity to purchase a rental

Pros:

I’d have enough money to put 20% down on two rentals in the $120k price range

Cons:

The market in my area is booming right now which makes it hard to buy something at a good price.

I have no rental history so my debt/income ratio may not allow me to buy 2 rentals after buying a new primary home.

Higher interest rate from the bank compared to what I’m paying on my current house

Option B: Rent out my current house

Pros:

Low interest rate as long as I don’t refinance

Builds equity faster than a new loan

Cons:

May be more difficult to find renters at this price? I’m not sure about this tho. Maybe I will get better renters?

Other cons? What am I missing?

Option C: sell my house and buy a duplex or 4-plex

Option D: try to partner with someone who knows what they’re doing

Option E: ??? Whatcha got?

Thanks all for the warm welcome!

This site definitely overwhelming but I'm very thankful for all the great info here. I've been doing a lot of reading when time allows and I will be posting details on my situation with several questions for the more experienced investors out there, especially those who manage rentals.

Pete and Brian - are you guys talking about the same investment club in Sioux Falls? I'll definitely want to get plugged in to that & will look for it on FB after I've done some more reading on here. When is the next meeting?

Chris - great idea with reaching out to property management companies for more info. I'll want to manage my own property (i think), but if they're giving out pointers I'm all ears. Can you recommend anyone specifically?

Thanks again

Hi - new member from Sioux Falls, SD. I'm a 37 yr old IT professional. I don't yet own any investment properties, but have thought about it for several years and am almost ready to convert my current home into a rental. I've just downloaded the beginner's guide and will be reading it soon. I've got a few questions about what to do with the equity in my current house, which I will be posting soon.