All Forum Posts by: Stephen Fleming

You want "advice", here it is; None of the above. 

This is all brand spankin new for you, and your struggling with committing. Your coming on here truly looking for assurance, certainty of a direction being "the" direction and truth is, there isn't any.

So, do the only smart thing, to get that certainty. 

Go rent a place for yourself for a year. 

Yes, rent not buy. 

Than, dip the toes in and get your place rented. 

Heck you could even do the whole round-trip with the same PM. 

See, all you gotta do is make sure your rent for the new place for you is the same or less than what you get for rents on your place. Effectively making it kinda free. 

Because the real reward here is experience without LT commitment. 

1yr to test the waters. No need to HEL and take on added $-expenses. And if your serious about getting in as an investor you'll have the discipline to put buying the next place on back burner for just 1yr. 

And as you go, rate it. Rate your experience of things. 

Within 9mnths your heads gonna be a whole lot more clearer if being a Landlord is the right call, or the wrong one. 

No, it won't be a guarantee of the future but your gonna know 10X more than you do now, personalized knowledge, how it is for you, to you, vs rando's on the internet yapping "do this" or "do that". Which yeah, guilty as charged, I'm one of those rando's too ain't I. 

But my advice is actually that, advice, my only profit is an up-vote if ya find this of value. 

I think this is the smartest way to go about it because reality is while anyone can Landlord, not everyone is good at it or can hack the life of it. It's not a universal fit, and there is a big difference between reading about it and actually doing and living it. 

Knowledge is power, so take the path to get some, the best kind, real world. 

 I think your responses are mostly from people with minimal or zero LL experience.

Rent - piti does not equal profit.  Maintenance/cap ex, vacancy, pm, bookkeeping/accounting/tax prep, misc

Next your underwriting should use most conservative numbers.  This implies your rent point is $2k.

So $2000 (rent) - $1000 (piti) - $600 (HEL) is $400 before the missed items

$300 maintenance/cap ex

$200 pm (even if self managing, allocate for pm unless your time is worthless)

Vacancy at least $100 (I use 5% in my very low vacancy market but believe 10% is more appropriate ($200) in most markets and I include uncollected rent in my vacancy)

Bookkeeping & miscellaneous $50

I show you are negative at least $250/month.  Let’s say I am wrong and it is somehow positive $200 (there is no way it is positive $200 but for this purpose let’s say magically it is positive $200).

$2400/year cash flow  

Appreciation at that price point is close to CPI so no real appreciation.  Equity paydown is hard to estimate because I do not have the initial loan amount or year started or alternatively years remaining so I will use rough guess of $500/month admitting this could be off in either direction. 

let’s call it $10k year total return. $60k equity.  Return would be 16.6% not bad but is still only $10k.   That is a lot of work/risk for $10k total return and remember the cash flow I used is not achievable)

It is rare for an OO to be an optimal rental property.

If you sell the gains are tax free (gains are less than the $250k single allotment).  Not sure of your tax situation now or later, but the tax savings can exceed multiple years of that meager return.

In addition having a single rental is inefficient.  How do you scale in this higher interest market?

Lots to ponder, but selling to get $120k (minus selling costs) seems tempting.  Apply the $60k to new home or you can choose to apply more reducing your payment.

Good luck

2000-2400 is a big span. On paper your house hit the 1% mark at 2400, which is also about where you need it to rent for this to be profitable after taking out the heloc. So you should do some more research on your rental market first - how fast do homes rent at that price point where you are, and is your home competitive, overpriced or underpriced at that level? If you're under or competitive, and you have a strong rental market, I could see turning it into a rental, because at $2400 you're also looking at some principal pay down. 

What you should compare it against is the opportunity cost of your cash. I assume you would sell/move either way because you want another house. So if you sell and put all the cash into another house you are no better off and possibly worse off than right now, with a likely bigger mortgage. If you move, what will you use for a down payment if you turn this into a rental?

I would do one thing at a time. Use the 20K as a down payment on the next house hack and don't touch your current properties equity. If you wanted to do a 1031 exchange down the road to use that equity and trade up then that'd be a good idea.

Is your new house going to be a househack? Or can it be? That would be a helpful addition to your plan as you would further reduce your cost of living.

Also don’t forget from that $600 you are planning on getting in cash flow you have taxes, insurance, maintenance, capex, and vacancy to consider.

With two homes, you may want to keep that extra $20k as an emergency fund rather than spending it on a third property and then be left with no emergency funds.