All Forum Posts by: John Martinez

maybe I missed it, but how much did you put down for a DP, and how much debt is still on the property?

My concern is your underwriting.  $300 for vacancy, cap ex, maintenance is too low.  PM should be included even if self managing because it takes time and effort.  

The real cash flow on this is negative.

My next issue is it is rare for your ex-home to be your best RE investment option.  I have one of our ex-homes in my RE portfolio.  It is consistently our RE with the lowest returns.  This is because it was purchased to be a good home for my family and not necessarily the best investment property. 

Currently due to the 2 of 5 year rule, you will pay no taxes on that 20% gain.   Convert to a rental and not reside in the property 2 of 5 years will make the gains taxable. 

I advocate selling and purchasing RE that will provide far better return than your current property.  

Good luck

Hey @John Martinez,

Couple things to think about here:

If you go to sell it, there are fees you'll have to pay including but not limited to commission (around 6%), you avoided capital gains, but you'll have title fees, sometimes closing costs or credit to the buyers, etc. You lose anywhere from 10-20% depending. At $190k (get a CMA from an agent, not Zestimates), that can take you down to $150k-170k range. Every state is different so talk to a local agent.

If you have the equity to make a move and you can find something that is going to make sense for you, then don’t write off the option of selling. I sold my first home to buy my 4plex I am currently house hacking. We originally were going to rent out by the bedroom in that home but we decided to make a move when we saw a home run deal. It was riskier than waiting it out until we could refinance and move out, but it worked out. The 4plex doubled in value in the last 3 years and we’re grossing +$2k living there. If we had kept our first place, we would have done fine too, but we most likely wouldn’t have found a deal like this one.

With that being said, you can still refinance and keep it as a rental. $144 isn't life changing money, but you also have principal paydown, appreciation, tax depreciation, and experience earned as being a landlord and an investor. It really depends on how much equity you have and how much this home affects your DTI.

I’d recommend talking to a lender to see what makes the most sense for your financial situation and what makes sense with your family. I recommend @Grant Schroeder, he’s an investor and a lender and has helped a lot of my clients get started and grow their portfolios.

Best of luck! Hope that helps. Let us know what you decide to do.

@John Martinez I am a big proponent of house hacking and you have a great opportunity to consider here. Next property with a mortgage and 3-10% down. Rinse and repeat. As always just my opinion

I'll suggest option three along the lines of what @Josh Young suggested. In Texas, you can't take out a Home Equity Line of Credit (HELOC) on a property that isn't your primary home. Think of it as a second position mortgage that you can take out and pay back as needed. So, you could take a HELOC out on your current house so you don't mess with the current 2.5% mortgage interest rate. It's almost the same as selling the house outright because you'd only get a percentage of the equity after taxes and fees anyway. Best part is, you don't get taxed on debt like you would the cash from a sale. Use that money as a down payment your next home, or even better, another investment property. HELOCs are good for 10 years, so use the cashflow to help pay it off faster and repeat the process.

Also, make sure you have the homestead exemption and consider challenging your property taxes to lower the mortgage payment. It might give a little breathing room and an increase to your cashflow. A good realtor can pull comps on houses in your area and make sure you're not being overcharged by the city/county/state. House prices were crazy high in the San Antonio area when they did tax assessments and the market has cooled off. There is a good chance you're being overcharged. Shopping for less expensive homeowners insurance policy is also a good place to trim the cost of your mortgage and increase cashflow. A 401k loan is also a good source for downpayment money if you have the option. 

@John Martinez

I would definitely keep it as a rental, that's actually pretty good cash flow relatively speaking, anytime you can cover your PITI with under 75% of rent you should be good to hold long term, and your loan at 2.5% interest is a valuable asset, your principal portion of payments on your amortization schedule are much stronger than they would be on a new loan which might be over 7% interest on an investment property. Buy a new primary residence using a conventional 5% down loan and put a lease on the current house counting 75% of the rent to help qualify if you need. Maybe take out at HELOC on the property before you buy the next, once it's a rental it will be much harder to add leverage.

Sell it.