We would like to take the next step in our journey towards financial freedom, but my wife and I are at a bit of an impasse. As we keep learning things, our plan keeps shifting and now we are finding ourselves in analysis paralysis. Here are several options we keep discussing.
1. Pay off our house.
2. Sell our house in this hot market and use the money to buy more real estate.
3. Try and find a triplex or 4-plex in a really hot Florida market, house hack by living in it as our primary and rent out our current home (basically only breaking even on our current house...more on that later).
4. Buy a multifamily and stay in our current home.
Four years ago we bought our first home for 229K and 30% down. At the time we didn't know anything about real estate investing, so it wasn't purchased with that in mind. However, we'd read Dave Ramsey so we knew we wanted to pay it off quickly. Fast forward four years. We've refinanced down to a 15 year at 3.1% We have about 60K left on the loan, so the house is almost paid off. But a year ago we were introduced to Bigger Pockets and I recently read 'Set for Life' by Scott Trench. Over the past year we've pinched pennies and now have about 60K saved up because we want to get into real estate.
Note: Housing is definitely one of our biggest expenses. In Scott's book, he talks about focusing on tackling those and he also mentions house hacking, which we are very interested in.
So do we:
1. Pay off the house with the money we have saved. It seems getting out of debt is never a bad option. This would really cut down our housing expense.
2. Sell our house. We've done tons of upgrades (new roof, updated pool area, crown molding, etc.) about 30K worth. If we can get around what Zillow says we can, we'd probably net between 20 - 25K. We could use the money from the sale and our savings to fuel more investments.
3. Buy a multifamily and live in it, rent out our current home. This option exited us the most at first because we can live in a fun area for free and rent out our current house. We eliminate our huge housing expense and increase our wealth. The problem is, we've put a lot of money in our house. I ran the numbers using BP tools and we'll only cash flow about $150 a month and the Cash on Cash ROI is only about 1.6%. Plus, multi-families are crazy expensive in Sarasota right now and we'd have to Airbnb to try and make a profit. Long term renters would put us in the red for the multiplex. So it seems not having that steady income increases the risk.
4. Buy a multifamily, rent all doors and stay in our current house. This option seems like it will still leave us with that big housing expense.
Any suggestions would be greatly appreciated! I think all of them are great options and that's why we are having some difficulty deciding. I'm leaning on #3 as maximum return, but maybe the highest risk since we would have to Airbnb and renting our house is basically breaking even.
Thanks in advance!
It sounds like you are in a great financial position, congratulations on making it to where you are at.
Now, regarding your questions, there are a lot of details about your situation that we don’t know, so remember there is no one “right” way.
- Keeping your house as a rental may be a short term plan, but the return is too low, that equity could be put to better use elsewhere
- if Airbnb is the only way to make money, it’s probably not a great investment
- I also went through a Dave Ramsey phase where I wanted to eradicate all debt, but your mortgage is cheap money @ 3.1%, so if your month to month financials are under control, which it sounds like they are,
Is your “extra” money better used making 3.1% return by paying down your mortgage or investing it elsewhere
In your situation I see two options I like:
1) sell your house, if you got ~250K (I’m guessing from your post) you would net ~160-170K after mortgage and sales expenses, plus your 60K saved, you would have about 220K to work with
I would want to hold some of the cash for an operating account ~3-5K per door, so if you hold back 20K for operating, You could buy up to $800K worth of property @25% down
- Buy a multi family to house hack
and, on the rest of your investments, if your local market does not offer good enough returns, consider investing somewhere else
2) you love your house, you don’t really want to move
Look at opening a home equity line of credit on your primary residence
That could give you access to ~127.5K ((250K*0.75)-60K owed)
127.5K+60K savings = 187.5K to work with
Regardless of your decisions above, focus on buying good cash flowing deals
Best of luck
Thank you so much for the reply. We do love our house because it's our first home as a married couple and we've put a lot of blood, sweat and tears into it. But we are realizing how much time and money it is to to keep it going so it's helping us detach from it. Seeing how much money we would have to fuel more investing if we sell it is definitely appealing.
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