How to value current home as potential first investment property?

4 Replies

Hi BP Fam!

Our primary residence is valued today at about $215,000. We're 8 years into a 30 year mortgage with $95,000 left at 3.875%. I'm new to investing and still in the learning stages.

We are in the early stages of building a new home and had originally planned to sell our current home to make the down payment - otherwise, we don't have the cash.

I'm now considering simply taking out a home equity loan on the current home for the down payment on our new build. This would allow us to keep the first home as our first rental, but I can't seem to figure out the numbers. 

I'm not sure which BP calculator to use - BRRRR or Rental... or neither, because the numbers come out much different.

I should be able to get $1600 or $1650 for rent and it will only need minor work when we move out - estimating $5,000.

Any advice on how to figure out if this would be a good first rental for our family? How would you evaluate this deal?

Hey @Meghan Custer I have a solid idea for you that I'll message you

But to answer your question, just use the rental calculator as the fixes you are saying are pretty nominal.

Make sure to budget aside % for vacancy, repairs, capex, management, etc. If after all budgeted items, it still cash flows, then itll make a solid rental.

Use the rental calculator. Basically you’re evaluating the house as a SF rental purchase. It doesn’t really matter that you already own it just keep it simple and see if it would makes sense buy the property as a rental. 

Does the rent cover the mortgage? Will there be enough left over for maintenance and profit? 

If the answer is yes then go for it.

Your PI should be about $535/month.  Add in your monthly taxes and insurance costs.  Now you will need to add in the interest cost for the equity loan/line (you might be better of getting a line than a loan and using it for the down payment and repair costs).  These are your baseline recurring costs.  They should be substantially less that $1,600/month.  Keeping the house is a no-brainer unless there are other exigent factors.

My wife and I employed this strategy in Marin County California.  We bought in 1997 for $445,000, liver there for 12 years and then rented it out.  We have not paid an expense except for a couple of capital improvements since 2009 and today the property would sell for $1,500,000.     

I should have mentioned that at this point we are receiving $26,400 in annual free cash (rent in excess of our PITI payments) + about $14,000 in annual mortgage principal pay down. In essence, we have bought ourselves a modest retirement plan for the 10% we put down to buy our first house. Seriously, go for it.