Which way to go?

Question

So just in the last few months, I've began to read about and become interested in real estate.  Right now I live in Utah. I live in a house that I paid $195,000 for back in 2012. It just appraised for $242,000. I owe $160,000 on it, with monthly payments being about $870. I could easily rent my house for $1300 a month. My question is what step should I take next? Should I sell my house, and take the money and go buy another? The worry I have with this is that the market is very high right now where I live. Should I stay in my house, and eventually move out and rent it? Or should I sell my house, buy a duplex live in one side, and rent out the other? Again the problem with this, is that the housing prices are really high right now in Utah.  Any insight would be very much appreciated. Thanks in advance.

Mike Dymski · Answer

I recommend that you separate the decision on where you live from the decision on renting your existing house.  In many cases, our primary residence does not make a good rental and limiting your investment decision to one property (your prior residence) is very limiting.  You would have to expect a fair amount of appreciation on your existing residence as a rental to offset the poor returns that you get on $1,300/mo on a $242,000 house.  The amount you owe on it is not relevant to your investment returns.  You can run the figures through the BP or other rental calculators and I think you will be surprised at what you find.  If predictable appreciation is in the cards, that changes the equation but I would still recommend bench-marking it relative to other investment properties.

If you are willing to house-hack as you mentioned with the duplex, that is an excellent way to get started in REI.  Even better, find one that you can purchase below market and add value.  A lot of this depends on your specific housing needs and goals.  Good luck with your research and your decision.

Brock Anderson · Answer

Appreciate the advice!