All Forum Posts by: Jennifer McElliott

As others brought up living expenses that will change - one big factor that crossed my mind that wasn't mentioned was health care coverage - that expense will probably rise as you get older and may be something that you are getting from your FT jobs right now... so perhaps a bit more of a buffer of living expenses of 2800 and actual passive income of 2900 would be warranted to cover increased health care costs?  

One nice payday bonus will be when your mortgages are paid off your effective income will also rise - so you will have that to look forward to too of course.

Good Luck and best wishes!

Are you from HI originally or just stationed there?  If you have family elsewhere perhaps those would be good places to start in - and if you are close with your family that may even help w/ 'boots on the ground' - i.e scouting, or helping w/ tenant issues etc.  And/or I'd say research areas where the economy is growing and where you might want to settle when you get out - might be easier than having a rental in various cities around the nation as a result of duty station changes!  Good luck in your ventures - good to see your forward thinking plans - I always wondered why more military folks don't invest!!

That's a great question - and one I've struggled w/ a couple of times now - we've moved from our primary home in the SF area - rented out a condo that was underwater and didn't cash flow, but covered (like in your case) the mortgage (P&I), HOA, and taxes but didn't cover vacancies, or capEx etc. That was 6 years ago and w/ the help of a PM that screened our tenant - we've had the same great tenant since that first placement so we never had to worry about vacancies. Also given the age of our condo, we haven't had any capEx expense, so basically we've had a tenant pay down our mortgage, and since then the market has rebounded and we are now sitting on a nice chunk of equity.

We're about to come into this situation again due to a military move and I'm contemplating the whole situation all over again.  So here's what I'd list out as the pros and cons to weigh (in addition to what folks have already brought up)...

Pros to keeping it as a rental:

1.)  Montebello - and most of the SGV is a very hot market - you're seeing some amazing appreciation in that whole area where even the neighboring cities that used to be undesirable have starting list prices of 500K!  So I think you do have appreciation on your side.

2.)  since this was a primary residence you probably have a better interest rate on it than you would if you were to purchase an investment property w/ the proceeds... and if not, have you considered refinancing it (before you move?)  What we've stumbled on is that if we buy a primary, live in it... then have to move, you get to keep that primary residence perk of lower down and lower interest rate and you get to re-use those perks when you move into your next primary home.  

Cons:

1.) it's not cash flowing - so that's an obvious con - but can you change that w/ a refi?  Can you value add - what kind of zoning is the house in?  is there any way to add a garage unit or something like that to get an additional renter in there?  

2.) This might cost you money if you get bad tenants - but again this could be mitigated to some degree.  

3.) Not really a con, but - a pro to selling is that you can reap the benefits of up to 500K in profit w/o being taxed on it and you won't have to worry about doing 1031 exchange or anything like that... but i think - and others will have to chime in on this one... that you can still rent it out for a couple of years and decide later to sell as long as you had lived in the property 2 of the 5 prior years!

As far as your HELOC goes - you'll also need to factor in how much you're renting out the other sides of your planned duplex and how much of a 'cushion' you will have with that. I'm assuming you and your wife have w-2 jobs... in our case that's helped up to hang on to that original condo that didn't cash flow since we weren't relying on the cash flow to make ends meet. So depending on the condition of your home - and what you can forsee for cap ex expenses that may arise and what your debt to income ratio is right now - it may be advantageous to hang on to that property. While it's true you probably wouldn't have purchased it as a rental from the outset, due to the numbers, you have other positives that you gain from it being a primary converted to a rental.

Best of luck to you!  Like I said earlier - we're back in that same position now w/ a house in WA and an upcoming move this summer... so we have a couple more months to kick around the pros and cons and watch the market a bit too!  Keep us posted!

Just saw an update on VA Loan limits for 2017 - good news for us, it's been bumped to 424,100 for most areas, and even higher for some high cost areas!

Link in case folks want to see the list of other cities where the limits go as high as 636,150!

http://www.military.com/money/va-loans/home-purchase/va-loan-limits-for-high-cost-counties.html 

@Malcolm Miles - we're planning on doing something similar - though we already own some rental property where we live now, we're moving as a result of my husband's requirement to attend the Air War College next year. I wouldn't worry about using the VA Loan on this property since you are still talking about a fairly low priced home relative to what you are allowed to borrow (i.e. a max of 417K)... so even if you bought this house for 100K, lived in it for a year and needed to move again, you can buy another house for 300K or so and get another VA loan. This is what we plan on doing for this next move at least :). Another upside right now is that w/ interest rates seemingly on the rise, these VA loans seem to have a slightly lower rate - but just prepare to also pay that 1% of loan funding fee!

Good luck to you!

sounds great, it'll be the first one I've ever attended, looking forward to meeting you all!

Is this plan created b/c you can't get an FHA loan which would only require 3.5% down? Those loans would have lower interest rates than a private lender as well. If not FHA and you're in a more rural area I believe the USDA one is also a low money down option. Have you checked out Brandon's low and no money down strategies?

One other option that my lender was telling me about - and was touting as better than the FHA loan requires you to go to some new lender class (even though I wasn't a first time borrower), I can't recall the name of that loan, but if you're interested I can find out more for you.

all good points @Colleen F.  it's funny you mentioning water leaks, that's exactly what happened on one side of this duplex before our offer was accepted... The leak turned into a full water heater blow out and the current owner had to replace the water heater and clean up water damage and mold!  

One unit has a bathroom that borders what you are talking about as far as bad condition that could cause further damage, toilet is missing the caulking around the bottom, fixtures don't all work and there's run off from the tub that should be replaced or s mold issue will become serious....the issue with remodeling that unit's bathroom is that the tenant has MS and is limited in her movements as is.... I suppose I could ask her if she has another place she could stay while we fix up her bathroom....

Got it - thanks for the tips everyone.  Like I said, this is our first time buying a unit w/ tenants already in it - wasn't sure how folks handled getting the rents to market level (which I assumed is at least partially how you factored the purchase price) when you inherit tenants.  

I agree w/ you @Account Closedwe can probably just raise rents $100 or so and still bring in around 600 after PTI, it's not where we want to be but if it's temporary I suppose it should be ok for a while.  

Anyway thanks BP community for walking me/us through this process - you all are truly a blessing and I know I would have FUBR'd this whole thing if not for being able to tap into all of your collective experience! :)

LOL @Kevin Manz - i love what you said here "Raise rents to market, and screen like it's your only mission on this earth. Good luck ."

Thanks everyone - I guess I just thought that in order to raise it that much, I had to have justification for it - i.e. the updating.  And when you guys raise rents - do you go through the process to make sure they still make 3x rent?