The first rental and how it happened...

In 2013 we were outgrowing our town home and were looking for a larger property.  If I only knew then what I know now we would still own that town home.  However, that is for another time....

During the time we were looking the Denver market was, to say it best, insane! Purchase prices were $20,000 above asking, people were paying huge down payments to avoid appraisal issues, homes were under contract within 24 hours of hitting the market, and we were cash strapped.  

We did have one saving grace, a VA backed loan, and we eventually found a 1 story, 1900 square foot, 3 bed, 2 bath home.  It had a 1600 square foot unfinished basement and backed to open space where Colorado Mule Deer would roam through.  The back of the home had a 230 square foot covered Trex deck where we would sit and eat while watching the wildlife.  Everything was great but two major events forced a change in our situation.

Event 1 - The appreciation in the Denver was going up when we purchased the home and sky rocketed after we moved in.  We purchased the home for $280,000 and its appraised value is $365,000 as of a month ago.  When appreciation sky rockets so do the rents.

Event 2 - I started reading forums and blog posts on Bigger Pockets and discovered something.  We had the chance to turn our liability into an asset and change the course of our future.  Don't get me wrong, we have always been conservative with our money, we even like to think of ourselves as minimalist.  However, this was a whole new thought process and we were excited to jump in head first.  

Jumping in head first is great but we had some obstacles to overcome.  

Obstacle 1 - Coming up with a down payment for a new home.  

Obstacle 2 - Finding a new home in the Denver market that we could afford.  Remember, appreciation is two-fold.

The good news is both of these obstacles were overcome with a few simple moves, and they even helped us come out ahead on the back end of the process.  

Rather than coming up with the cash needed for a down payment for a new home we simply reinstated my eligibility for a VA loan.  How?  Because we had 80% LTV on the current home we simply refinanced out of the VA loan and into a conventional.

At this time the market was till crazy so we couldn't compete with inflated and cash offers. (Side note: Low down payment programs hurt offers in a sellers market.  Sellers will not accept inflated offers if they are worried about appraisals.) To circumvent this we decided to roll the dice on appreciation.  

We went under contract using the VA backed loan on new construction and hoped we would walk into equity when it was complete.  It delayed our ability to rent our other property immediately but did allow us to increase cash reserves during the waiting period.  We've since moved into the new home and the final result is:

Rental Property: We are currently renting our old home for $2100 a month with a monthly PITI of $1400. Also, between paying down the mortgage and appreciation we just hit $100,000 in equity.

Primary Residence: From the date of contract to the day we moved the home value increased $43,000.  Not bad for tying up a $5,000 deposit for nine months, of which we received $2,600 back. 

None of this could have been possible without the knowledge gained from Bigger Pockets. 

Needless to say we see how buy and holds will lead to early retirement and we are preparing for the next one!