What should I do?

Question

I currently own my home with 80k left on the mortgage I have built up around 170k in equity. I could get around 1800 a month in rent if I rent the whole house and I believe I can get around 2300 if I rent by the room(my mortgage is currently around 900 a month). I have considered selling the house and buying either one or two condo hotels for STR or simply downsizing to something else Ive been stuck in analysis paralysis for years and I really want to do something I just don't know what to do. any advice is appreciated thanks in advance.

Jerry Starr · Answer

You’ve got $170K in equity and a $900 mortgage — don’t let that sit idle. Rent by the room for $2,300/mo and pull a HELOC or cash-out refi to unlock capital. Use it to buy a second cash-flowing property (duplex, STR, or small rental). Skip condo hotels unless you really know that game. You're in a strong position — analysis paralysis is costing you more than making a move ever could. Start now, refine later.

Dave Foster · Answer

@Andrew Bryant, Good options abound.  And there's no need to be in a hurry to cut that house loose if you want to test the rental waters.  If you choose to sell, you could take advantage of the 121 exclusion, which allows you to take the first $250k ( $500k if married) of the gain tax-free if you have lived in the property for two out of the previous five years as your primary residence.  This means that you could also move out and rent it for up to three years and still get that primary residence exemption.  If the rental works great.  If not, then you can always sell during that window and still get the exemption.

As @Jason Wray said, you could refinance and use the cash to put down on another property at any time during this period as well.  However, you'll probably get a better loan if you refi while you're still living in it.

You could also rent out a portion of the property (House hack) until you either want to move out and rent out the rest of the house, or purchase another investment property.

If you went with either of these options and decided to sell later on, you could take advantage of a 1031 exchange, which allows you to defer all of the tax when you sell an investment property and purchase another investment property/properties, still not having to pay tax on the sale or depreciation recapture.

Henry T. · Answer

Idaho, Arizona, sure, go for it. California, Oregon, or Washington, NY, forget it.

Jason Wray · Answer

Andrew,

You are in a golden situation where you owe very little on your mortgage and could benefit from doing a "cash out refinance"  The cash out refinance will allow you to take out some cash to use as a down payment on another home.  Instead of using your cash now that mortgage rates are falling back down again.

Take the cash out enough so it still allows you to cash flow and a decent NOI to buy and build your REI portfolio.  You could use the cash out to buy a new primary home and target a home that may need some TLC/minor renovations.  That will allow you to increase or speed up the ARV/equity to then BRRR and start the process all over in 8-12 months.

This is the most common method to building passive income and growing your REI portfolio to set up retirement.  If you have any questions or want to look at the numbers feel free to reach out via email or check out my profile.