Hey Matthew, thank you for asking. I hope you're prepared for the incoming wall of text.
My wife and I purchased the first house as our primary residence (also the first home purchase ever for the both of us) right before we were married. I'll call it Panhandle #1. This was in 2007. Fast forward a year and we decide to move closer to family. In that same span of time our house's value dropped by 30% and has only just recently recovered to the same level as when we bought it. I would have preferred to sell, but we stood to lose a decent chunk of money in lost equity so we decided to try and hold onto it as a rental property. We were able to rent it fairly quickly, but the cashflow is zero with just the P&I and escrowed insurance/taxes alone. When you add property management fees we are now into negative territory. I refinanced several years later when rates were better but I shortened the term to 20 years, thinking we would just hold onto and at least we would be paying less interest on a 20 year vs. 30 year. However by shortening to 20 year we were put in a similar situation as before regarding negative cashflow. After poking around here for a while and learning about how to evaluate deals, I'm realizing I need to rectify that situation. I think even if I became the landlord myself, the math still wouldn't work out when you add in vacancy, CapEx, and repairs. I'm still learning so it's possible I'm missing something. That's the first reluctant landlord situation.
In the intervening years, we bought and sold a couple houses (primary residences) that needed work and basically through sheer dumb luck we won the appreciation lottery. There was almost no analysis involved beyond, "This is a prime location and we think this area will appreciate." I will say that we did put a lot of sweat equity into both houses which was a great learning experience as far as what goes into construction and renovation.
The second situation was also intended to be our primary residence. While we were living overseas, we decided that we wanted to live in Fairhope somewhere down the line. We were worried that by the time we moved back, prices would have appreciated even more than they already had. so we decided to purchase a house with the intent to lease it out until we moved to the area and could live in it. I'll call this Fairhope #1.
We ended up moving back to the states much earlier than we had anticipated, because a job opportunity came up that would allow us to move to Fairhope. Because of logistical reasons, we signed a lease on a place before we moved to the area. I'll call this Fairhope #2. Our tenants' lease in Fairhope #1 had another 8 months on it when we moved to the area, so we had planned to rent Fairhope #2 for a year and use the 4 month time frame between the end of their lease and the end of ours to make a few improvements to it so we wouldn't have to disrupt our lives while living in it. When we first arrived though a coworker told me about a house his neighbor was getting ready to put on the market and told us what his asking price was. After looking at it we were blown away. The house itself was a bit dated, but the owners had taken excellent care of it and it had a lot of great features. We put an offer in before it went on the market and our offer was accepted. Fairhope #3 for those keeping score.
So at this point in the story we have our first house, Panhandle #1 with cashflow in the slightly negative. Fairhope #1 is rented out and has strong cashflow because we put so much of our dumbluck equity into it. We close on Fairhope #3 in a month and a half and we are paying rent on our lease for Fairhope #2 for another 10 months. I knew that we could in theory carry both the mortgage payment on Fairhope #3 and the rent on Fairhope #2 if we had to, but I was hoping that once we moved into Fairhope #3, Fairhope #2 could be released to a new tenant rather quickly. That's basically what happened. I ended up only having to pay one month of both rent and the mortgage payment before a new tenant was found and I could breathe a huge sigh of relief.
Now I just need to figure out my game plan moving forward with Panhandle #1 and Fairhope #1. I SHOULD have a decent amount of equity in one (62% LTV) and a lot of equity (33% LTV) in the second. I don't think I can do a cash-out refi though because they won't cashflow. Right now I'm debating between selling as-is or seeing if I could squeeze out additional equity of I put some work into them. That's one of the areas I'm focusing on knowledge-wise at the moment.
Sorry about the long winded explanation, but it has been on my mind a lot lately. At the very least I hope my situation was somewhat amusing in a sort of comedy of errors way.
