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I'm currently in a mortgage fixed at 4.675 APR, owe 83k on a house worth roughtly 110k. Mortgage payment is $650 with insurance and escrow combined. I have roughly 110k liquid and want to move to a larger house in a better school district.
I'm looking to purchase something in the neighborhood of 220k to 260k. Right now the plan is to put 110k torwards the loan of the other home, rent my old home and leave the equity in it. I'm looking for other opinions on what YOU would do in my scenerio. I'm for sure not 100 percent going this route but for my needs I think this is what I'm gonna do.
My reasoning for this is:
I will be carrying quite a bit of liability and don't want to over extend myself with the second property and not be able to afford paying two house notes in the case of no renters. I will save quite a bit putting so much down and have the secruity of a low payment. I still have a good 6 month reserve left to hold me over and roughly in 56k in my retirement that has been untouched but can be if something dire were to arrise.
Any info or opinions, including holes in my plan would be greatly appreciated. If there is any additional info need I'd be glad to provide.
I'm just not sure I want to try and sell a house, rent till I find a place and move or bridge loans seem like a hassle as well. I'm a thrifty type and want to make absolutly sure I don't waste any money and do the best thing.
you may be better off selling your current primary residence,
moving into the new one, then using whatever $ you wish
on a totally different investment property, such as a 2 or 3
unit.
Your plan is perfectly feasible as long as you can keep the current home rented. That is the variable. If you are lucky enough to find a good tenant that wants to stay and pays on time your will be golden.
My neighbor attempted to rent out his home and had 2 sets of tenants move in and then out in under six months. He is in construction, and was able to do the repairs himself, otherwise it would have cost him thousands.
Being a LL is not an easy gig. If a tenant damages your home, you'll be able to get a judgement for the amount of damages in all likelihood, but will you ever be able to collect? It's not uncommon for tenants to move other people or animals without notifying their LL, etc.
If you're risk adverse, being a LL might not be for you. I had next door neighbors my LL and I both thought would be ideal. The wife had a good job with the same company for something like 20 years. The husband worked for family. It turned out that the husband had a bad drug habit, and the wife relapsed and lost her job. These were church going folks, that would smile, promise something, and promptly go break it. They strung my LL along after getting an eviction notice, and of course trashed the place.
Spend lots of time learning your state and local laws, as well as spending some time in the rental section before making your decision. A home you lived in and care about will cause most people more stress, than an investment property they have no attachment to. My parents became accidental LLs twice, and it helped them create additional wealth, but they hated it with a passion.
What does the rest of your credit report look like? You are best off paying off every OTHER debt that you have, getting your mortgage person to update your credit, thus optimizing your credit scores and ratios, and then putting at least 20% down (+closing costs if not covered), AND keeping a MINIMUM of 6 months PITI for both properties in liquid savings.
Mortgage debt is the best kind of debt to have, if you're going to have debt at all.
You mean put 83K on the home you currently own, not 100K. This entire scenario is dependent upon your rental market. If it's anything like the DC market, it's a no-brainer, there's a shortage of good rental and what is available is commanding top dollar. If you have enough to cushion a vacancy, the rental income from property #1 could very easily cushion the PITI of the purchase. I recently closed a loan in a similar scenario, only the new loan went with a 15 year loan, and the buyer had plenty of reserves. So, yes, your idea can work nicely.
My recommendation would be to keep your life simple: sell your present house. Unless you really want the headaches of being a landlord, take your equity and invest it in another primary residence. You may get lucky and only have good tenants, but if you get one bad tenant you will rue the day you ever considered becoming a landlord. I've owned many rental properties and I am so relieved that I do not have to deal with tenants anymore. To me, it wasn't worth the hassle.
My recommendation would be to keep your life simple: sell your present house. Unless you really want the headaches of being a landlord, take your equity and invest it in another primary residence. You may get lucky and only have good tenants, but if you get one bad tenant you will rue the day you ever considered becoming a landlord. I've owned many rental properties and I am so relieved that I do not have to deal with tenants anymore. To me, it wasn't worth the hassle.
+1......
Funny thing though on landlords, they have a great market now (post boom) since more people don't qualify for loans/can't buy. I think the only good money in being a LL is ghetto rents (cash rents in junk places that you don't care about/don't fix anyway) or solid areas with high turnover assuring solid rent rates, big selection of tenants so you only take the best (think college area, renting to college staff, not students).
I have a buddy that owns some ghetto buildings, everyone pays $100 a week in cash only, $125 if late. No annual leases, week to week leases, 12 units. He collects $1200 a week, $62,400 a year and he bought the whole building 10 years ago for $44,000. Majority of tenants have been there for the whole 10 years. He insures minimal values on the building, pays $4,000 in taxes. He has to be taking in 50K a year net before taxes. The building has been free and clear since day one. It is a good system, but the area is sketchy, to the point you don't go there after dark.....ever. Daylight is rough but ok. He works nearby so the rent is due every Friday before he goes home. I would love to leave work every Friday with $1200 in cash on top of a paycheck!
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