Hi,
My first post here as a pro member, but looking forward to contributing and I wanted to get your thoughts on our unique scenario.
About 3 years ago, I purchased a single family home in the central Austin corridor for $379K. The house was built in 1940, in good shape, and sits on a 1/4 acre lot (hard to find anywhere in Austin, and there is a very strong opportunity to combine all of these lots and sell to a developer, my neighbors are on board.)
It's roughly 1100 sq feet, 3 bed/2 bath and I put down 5%. We were approved for lender paid PMI and the total rate is at 4.5%. Monthly payment is at ~$2,585 with escrow and insurance rolled in.
During the 2.5 years that I lived in the home, I added quite a few upgrades - including a completely new HVAC system, new roof, drywall repairs, new deck, fence, etc. I moved out of the house in September to pursue a job in Denver, which I got, and the relocation kicked off! We quickly got a tenant to move in and they've been fantastic working with over the first 5 months of a 12 month lease.
The tenants are paying $2,435/mo and have caused us zero headaches. No major maintenance issues in this time, the only cost was a minor electrical repair and extermination fees.
My question is, now that I'm looking at buying a new property in Denver, should I even keep this Austin property?
1. It's cash flow negative right now, impacting my new loan approval
2. I still don't have equity in the house, but I estimate it's probably worth around $415-$425K now, owing $349K on the loan.
3. Right now, I wouldn't need to pay any capital gains, but I understand how I can leverage a 2031 exchange down the road.
4. PMI - I still feel like I have no idea how a refinance will impact the lender paid PMI, I'm told by one of my lenders that it will never go away, and another that a refi will remove it if the appraisal comes in above 20% as usual.
I'm actively looking in Denver for something in the same price range, especially given the fact that property taxes are extremely low here.
Here's where I run into issues - My pre approval is coming in approved for the high $200K's, because I'm losing ~$100/mo on the rental house, I took a new job and they only account for my $90K base salary (not the $200-$300K on target earnings number, at least until I've worked there for 2 years), and I'm only wanting to put 5% down.
My solutions seem to be:
1. Sell the Austin house, take the $75K minus closing costs and smile to the bank. Then, put that toward a downpayment and start over here in Denver with a more expensive property, lower monthly payment because of taxes being so high in Austin, and after 2 years move it to the rental market.
2. Should I just build a second Accessory Unit in the back and rent that for another $1,200/mo? If I was in a position to pay cash or a private loan, this should raise my approval on the new deal, and I'm taking in another $1,100 in income monthly.
3. Put more money down, which I'm hoping to avoid but don't see a way around.
Do you guys have any advice as to what I should consider here? I am trying to build up my assets to meet my long term goal of owning 10,15,20,50 rental units. Selling seems like a step back, but it might not be, and I am 100% certain of my emotional attachment to the house.
THANKS!
ZW
