Debating renting primary VA residence and purchasing new primary
Hello!
I have been a long time listener of the podcast and read a few different investment books and I am interested in building a single family rental home portfolio.
I currently live in and have been rehabbing a 4 bedroom 2.5 bath home with a 2 car garage on an acre lot in a cul de sac. It is updated nicely with new carpet, granite throughout, new appliances etc. This home is in a great area within walking distance to an elementary school, a middle school, (both great schools) Whole foods, and the list goes on!
The home was purchased with my VA loan at 2.99% with a remaining mortgage of 393k currently. The payment is $2,196 with my current insurance. I looked in here to find information on how to gauge a good rent price. I used rent-o-meter to find a projected rent of $2,500. I also talk to a local rental management company tomorrow to see what their projected rent would be for the property. I have also looked at Trulia, Zillow, and the MLS at rentals nearby.
I would like to purchase a new home in a development nearby my Fiancé's family. I can use the remaining VA eligibility I have to purchase with no money down around 358k. My plan would be to buy a home to live in for 2ish years with the goal to rent that home as well.
My main questions/points of thought for this forum would be:
1. I could potentially sell this home in the mid 500's currently. I would be in a good spot with equity, but my instinct is that I should hold on to the property. Is the interest rate, location, and possible(likely) appreciation of this home worth keeping it? Do the numbers sound too close? This is an older home that could potentially still have maintenance issues. Do I sell and take the equity and look for another property? One main point here would be I do really like this house personally.
2. What questions am I not answering? I am open to any and all to make sure I am looking at this correctly.
3. When considering the new purchase what factors do you look at when purchasing a primary home that you plan to turn into a rental? My first thought or slight apprehension is that the property will not be bought at a significant market discount of any kind. Could this hinder my ability to be competitive in the rental market when I am ready to list? These are the questions that come to my mind.
Thank you for any/all advice and your time!
Hey @Richard Hamm congrats on what sounds like a big winner there! Two high level quotes come to mind "Let your winners ride" and "a great value asset at a fair price is much better than a fair value asset at a great price". I'd use that as some guiding principles for your questions in general.
I personally think moving primary residences every few years is a fantastic way to start building a portfolio. My wife and I have done it several times, and we didn't even have those sweet VA loans.
1. The first property sounds like a winner from a configuration standpoint, rate, location and cash flow. I'd keep it and let it ride. I personally like to have at least a few hundred dollars a month in positive cash flow, so (assuming your figures are correct) I'd say keep it and rent it for sure. Great assets get better and better over time.
2. Hard to answer this question. I'd personally think on lifestyle desires, plans in the next few years, etc when asking myself if this sort of thing is a right decision. It's different for each of us, but I think the questions you are already considering are great.
3. As everyone know #1 is Location location location. Sounds silly, but it's the absolute truth. Your thoughts on market price go back to my second quote about focusing on buying amazing assets at a fair price (versus fair assets at amazing prices). This is a Buffet/Munger quote and translates well to real estate. So I'd focus on location, configuration (beds and baths) that people love to rent, great school district, etc. Then I'd ask myself if the monthly payment would cash flow based on rental comps. We all might be able to refi another 100bps lower in the next year (we'll see) so might get a bit more cash flow then. But those are the main things I'd consider.
Good luck!
Totally agree with Daniel.
Richard,
Only problem I see is building a new home and getting married are both very stressful items to deal with.
And costly. To make changes are big $$$$ decision.
My son in Utah , will sometimes buy a new house or condo but uses them as rentals because the wife and kids are setted in their residence.
Good luck and enjoy making money on 2 properties that go up in value 80,000 - 125,000 per year.
Fantastic way to make you a million every 4-5 years.
