Updated 1 day ago on .
Owner Occupied SFH
Just starting out. Wife and I (age 32) have steady W2 incomes, currently renting but wanting to start our real estate investing journey (trying to exit the rat race of our 9-5s, have more family time, diversify our investing portfolio).
Ideally SFH, owner occupied with potential to convert to mid/long-term rental after 5-10 years. Have a young son with complex needs which makes house hacking unrealistic. Also makes location important to us (proximity to medical center, good schools) at least for this initial owner occupied to convert to rental home. Wanting to not pour too much into this home so that we can use our W2 income/other monies to work on expanding our RE portfolio (other SFH and 2-4 units).
We've both read some BP published books so are familiar with general/introductory concepts (leveraging, importance of cash flow/forced appreciation/loan payoff/tax benefits) and have some basic formulas on hand. Have also referenced some all inconclusive calculators that seem a bit complicated/over our heads.
Looking at 300-500K SFHs in San Antonio. Assumed 45k down, 30K for repairs. Referenced MortgageNewsDaily and am seeing rates in the 6.2%. Main limitation is the capital we have upfront (<20-25%). Can look into physician loan if PMI is worth avoiding (have low debt:income ratio). I created a spreadsheet assuming 5 years owner occupied, then 5 years rental prior to sale with best (70% rule, 2% appreciation each year, factoring in 5% vacancy/capex/repairs for each month) and worst case scenarios (lower ARV, 1% appreciation each year, 15% vacancy/5% capex and repairs). I am consistently getting negative cashflow (high loan amount, high interest rates) but very high ROI and IRR (if selling the home in 10 years). Is this expected? Should we change the annual appreciation amount in our analysis? Are there other formulas/methods of analysis thats more accurate/appropriate?
Open to any feedback.
Thank you!