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Make sure your current mortgage lets you convert to a business property at the same interest rate.
The way I read you is that you never intended this to be your home but just a stop as you get it ready to rent.
Assume your next home should work until your kids get out of college or have to relocate due to your job.
Can you carry both homes if your tenant loses his job and it takes you a few months to evict and then you have to repair some damage? You emergency fund should include money for this event. At sometime as a landlord you will have tenant problems.
They have put a lot of labor into the house, so the equity increase is improvements. Also in some areas, prices have gone up at a rate that is way out of reason.
Check with a couple of mortgage brokers to see what they can do for you. They might not like it if you are borrowing your down payment money. Also an equity loan isn't going to be any cheaper than a mortgage and as long as you are going into more debt, it might as well be all on one house.
I'm going to add this: the economy is really wonky right now and myself, I would be really cautious about taking on a large new debt at this time. Have that budget worked out with room for contingencies.
I'm not saying to not do it, I'm just saying to be really cautious and have the plan fully and carefully worked out.
We have a similar situation to the OP. Bought pre-pandemic and house price has doubled very quickly. We could sell for a great price. However there is nowhere to go. A new bigger house will likely cost 3X what we paid for our current home, plus mortgage rates have doubled. The actual cost of such a mortgage on the larger home would be 2-3X higher, and would require a much larger cash down payment. So we are basically stuck.
-Bought our first home in the heart of the pandemic (April 2022) for $310,000
-Based on comps from my neighborhood (and advice from a realtor friend), I'm thinking my house is worth around $550,000
-That puts me at $240,000 in equity
-Mortgage payment is $1,600 at 3%
-Based on rental rate comps in my area, I can rent my house for $3,000 a month
We are already outgrowing our house and our long-term plan has always been to turn this into a rental. We have updated it like crazy and have put blood, sweat, and tears into this thing. I want this to be a rental and maybe eventually sell it to one of my kids someday.
So my question is this, does it make sense to pull out money now from my home? Use the money as a down payment on our new home and turn this into a rental? If it's a rental I will continue to have positive cash flow for the foreseeable future. My fear is that if I don't pull the cash now, my equity will continue to drop as the market dips. And I also think that now is a decent time to pull the trigger on a new home as a lot have been sitting on the market for a longer period of time.
I don't want to do a cash out refinance, because that would make my great rate go up. So I was thinking about a home equity loan for the down payment on my new house? I'm not great with this kind of stuff, so if this is stupid, please just tell me. I'm just trying to put myself in the best financial position, while also being able to purchase a home that better suits our needs.
Thanks in advance!
"Heart of the pandemic" April 2022?? Surely you have the wrong year.
Surely you don't mean to say that you are outgrowing a house that you JUST bought 3 months ago.
I have also had many friends who owned a home and then were transferred to some other duty station and decided to turn their home into a rental. In every case they lost their shirts.
A single-Family-Residence turned into a rental usually loses money.
A Multi-Family-Residence [like a Tri-plex, Four-plex, five-plex, ten-plex or what I have today a Fourteen unit rental property] has completely different math.
Don't believe what people are telling you, they are still struck on the idea that the market is what it was a year ago, however the market has completely changed over the last 1-2 months. You need to get on realtor.com et al and look at similar as well as all homes in your town, how long they have been listed, how many priced reductions their are, relative to their asking prices. You'll probably see things moving in the lower range and a lot of homes priced as if it were still May.
My brother in-law told me his house in the Berkshires was worth x, a realtor told him. I did the research and showed him I could buy similar houses all day long there for like 1/2 of what he things his home is worth.
-Bought our first home in the heart of the pandemic (April 2022) for $310,000
-Based on comps from my neighborhood (and advice from a realtor friend), I'm thinking my house is worth around $550,000
-That puts me at $240,000 in equity
-Mortgage payment is $1,600 at 3%
-Based on rental rate comps in my area, I can rent my house for $3,000 a month
We are already outgrowing our house and our long-term plan has always been to turn this into a rental. We have updated it like crazy and have put blood, sweat, and tears into this thing. I want this to be a rental and maybe eventually sell it to one of my kids someday.
So my question is this, does it make sense to pull out money now from my home? Use the money as a down payment on our new home and turn this into a rental? If it's a rental I will continue to have positive cash flow for the foreseeable future. My fear is that if I don't pull the cash now, my equity will continue to drop as the market dips. And I also think that now is a decent time to pull the trigger on a new home as a lot have been sitting on the market for a longer period of time.
I don't want to do a cash out refinance, because that would make my great rate go up. So I was thinking about a home equity loan for the down payment on my new house? I'm not great with this kind of stuff, so if this is stupid, please just tell me. I'm just trying to put myself in the best financial position, while also being able to purchase a home that better suits our needs.
Thanks in advance!
That's a bit of a strange idea. If you are concerned about houses in your area going down in value, why would you want to own two of them?
Don't believe what people are telling you, they are still struck on the idea that the market is what it was a year ago, however the market has completely changed over the last 1-2 months. You need to get on realtor.com et al and look at similar as well as all homes in your town, how long they have been listed, how many priced reductions their are, relative to their asking prices. You'll probably see things moving in the lower range and a lot of homes priced as if it were still May.
My brother in-law told me his house in the Berkshires was worth x, a realtor told him. I did the research and showed him I could buy similar houses all day long there for like 1/2 of what he things his home is worth.
Agree, the OP really needs to do research to see if that's what homes are realistically selling for right now because the market is turning in some places. Homes that used to sell on the first day of the MLS are now sitting longer, some have had to reduce their price.
We just sold, decided to rent because house prices doubled during COVID. Rentals were very hard to find too. We had to pay a years rent in advance. We bought right before the last crash. No way we were doing that again in an inflated market.
Personally, I would sell it and rent a place if I could find a rental. I would not rent it out. I'd be thankful to have made that kind of money on the house and move on until I saw what the market was like in a year.
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Surely you have the wrong year.
