Rental Property Investor · Kalamazoo, MI · Member since 2019 · 23 posts · 0 votes
Hello everyone. I must start by saying I love bigger pockets. I’ve come across it within the past year or so and it has sparked a passion I didn’t know I had, real estate. I really want to take action and get started but I am not sure on how to do so. I purchased my first home last year and I quickly found out that this is NOT MY ideal neighborhood to own a home but a great area to rent. I have really put a lot of work into my home and created a lot of forced appreciation and I have one of the nicer homes in the area. It’s not a terrible area, just doesn’t suit my personality, noisy neighbors who constantly are out all times of night. I want to purchase a new home in a quieter neighborhood but don’t really want to sell my house as I could generate income from it and start my real estate investing career. I just honestly don’t know where to start. Should you turn your home into a rental? How would I do so? Should I just sell it? Would it be a good rental due to the aforementioned reason as of me wanting to move? This is probably a silly question but hey, if you don’t ask you’ll never learn. Any advice would be appreciated, thank you.
Auburn, NH · Member since 2016 · 235 posts · 207 votes
5y
Are you able to rent out your current house at a rate that you would cashflow? Or at a minimum break even? Have you run comps to see what you think it may appraise at? That might give you some idea of where you sit should you refi.
I can only speak for myself, but I'm a big believer in holding onto houses once I've gotten into them. It sounds like you think the home has good rental potential, so I'd probably try to refinance out as much equity as I could (assuming that it's a possibility - hopefully so as you mentioned forced equity). With the money I took out, I'd make a down payment on a new home (and hopefully another rental or two depending on how far the money goes). All of this assuming that the rents would pay for the new mortgage, etc.
Rental Property Investor · Kalamazoo, MI · Member since 2019 · 23 posts · 0 votes
5y
@Chris John
That sounds like a great idea. Thank you. I don’t think I have tremendous equity in the property (enough for 2 down payments) because since I bought it as a personal residence, I wasn’t as concerned as finding the best deal. I got a decent deal on it but for my goals, would I need a little more time to let the appreciation work for me? Would you recommend getting an apartment or something for like a year while I collect a year’s worth of cash flow to accompany my equity that I pull out? Thus ensuring I have a bit more to get started with on a second property, and having money come in from my home? I only mention this to combat the possibility of low equity ($10-12K). I like this idea. I really appreciate it.
Real Estate Agent · McAllen, TX · Member since 2017 · 382 posts · 281 votes
5y
Yes, you can definitily but a condo to live in next. Just make sure it rents good for when you leave because you won't be living in that condo forever! You can buy it with as little as 3.5% down, since you will be living on it, meaning you should be able to buy it without pulling any equity from your current home. Keep working and saving and before you know it, together with your savings, you will be able to pull enough savings from your equity to but another property! I've never sold a house so far, and I don't regret it.
To me the only reason to sell a house is if you can sell it for a really high price and the house doesn't rent very good. In my market, this would be the equivalent of a $300k house that only rents for $2k because I know that with $300k I can buy 3 $100k homes that rent for $1000 each.
Auburn, NH · Member since 2016 · 235 posts · 207 votes
5y
Are you able to rent out your current house at a rate that you would cashflow? Or at a minimum break even? Have you run comps to see what you think it may appraise at? That might give you some idea of where you sit should you refi.
It's really difficult to know too well what would be best for you. For instance, would you be happier to be in an apartment instead of your house? If so, I'd probably do something like that. If I'd be happier in my house, I might just wait things out.
I had a former coworker that would just keep leveling up on their personal residences. The first house they bought was well below their means. They moved in and lived there for a year or two while they saved up a down payment for their next house. When they moved, they kept the previous property. They did this several times and ended up with a nice, small portfolio of rentals. Each house is progressively nicer than the previous one, but they own them all. I don't know the particulars, but I believe that they were purchasing them FHA (I've never bought a house using FHA so I'm not particular with the process and/or limitations of the program). It's definitely possible that they were using conventional lending.
Regardless, I've kind of lost touch with them as she moved onto greener pastures. I still see them around town occasionally, but when I do we don't discuss real estate. Anyway, there's been quite a lot of appreciation in this part of California over the past 10 years or so. They're probably in a position where they could have refinanced those houses and used the equity to really turbocharge their portfolio, but I don't know if they've done that.
I know there's a lot of creative, lucrative investment strategies but mine is pretty boring. I started small and try to live below my means. As my savings add up from rents, I try to buy more real estate using leverage (always making sure they cash flow pretty well). As I get enough equity in houses, I try to refinance as much cash out (making sure they still cash flow nicely) and try to buy more real estate. If I own 100k of houses and they appreciate 2%, I make 2k of portfolio income. If I own 1M of houses and they appreciate 2%, I make 20k. Same with debt retirement. Instead of paying off 1/30 of 80k, I might be paying off 1/30 of 800k (I realize that it's not straight line, but hopefully you get the point).
If the cash flow can pay for the repairs, maintenance, tough times, etc., (and hopefully put some money in my pocket), simply owning a home in my name for a decade or two will provide a lot of equity that I can borrow against to buy more. Again, I'm sure I've left money on the table by being lazy, but it's been pretty fun to watch the portfolio grow little by little.
I love talking about this stuff (especially seeing a young guy trying to put himself into a better position). I'm anything but an expert, but am happy to help in any way I can so please let me know if you think I can answer any questions or anything for you.
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
5y
You need to get a pencil and hit the numbers. What is the average rent in the neighborhood? How much premium can you realistically expect on account of how nice your property is compared to others? You can get a sense of the market rent from zillow. Then, look at your expenses. Mortgage + Property tax + Insurance (PITI). Then, consider how much to reserve for vacancy, repairs and capex based on your market/shape of the property. Will the investment yield cash or will you be feeding the alligator every month to support it? What is your risk profile? Are you a naturally shy person who does not like dealing with strangers? Then, maybe property management might be in cards but this expense often makes the numbers not work in your favor.
I think turning your primary residence into a rental is a great way to get started. And if you ask around you will find out that is how a lot of other investors got started in their real estate journey.
I would first start with going on rentometer, zillow, or some other site to determine what houses similar to yours are renting for in the area. Then you can compare that number to your mortgage payment and see what type of return you would get. You can also talk with some property management company and see what they think about the rentablity of your home.
Real Estate Agent · Winston Salem, NC · Member since 2014 · 486 posts · 303 votes
5y
@Dominick Anderson I did this. The house I was moving from was in a bad neighborhood and the area was known for rentals so it made sense for me. I sold it 6 years later.
Just remember that even when you lose money on a rental, you are probably still breaking even or coming out ahead (assuming the numbers are close). I appeared to be losing $300/mo on my old house, but I was actually coming out ahead when you figured in write offs for depreciation and interest. Also, debt retirement.
What made it really great, though, was the appreciation that came with it. Now, it definitely pays for itself and would have a lot of equity (I borrowed against it though to buy other properties).
Long story short, there's a lot of advantages to owning property that go well beyond cash flow. That's why I'm so hesitant to sell and instead prefer to refinance money out and keep buying. I'd rather have 2 houses being paid off and appreciating in value than one.
Property Manager · Dallas, TX · Member since 2020 · 109 posts · 79 votes
5y
@Jeremy Wirths is right. I would definitely run comps on it to see what a fair rental price would be.
If you were in the DFW area I would run them for you! Our company even has an app (McCaw PM app) on both app stores that allows prospective parties to request rental comp analysis right from their phone. But really right now we're focusing on continuing to grow in North Texas, East Texas, Central Texas, and throughout Dallas and Fort Worth. So I apologize that you're out of our region.
Perhaps there's a realtor on here in your area that can run comps for you. Or a property manager like myself.
Rental Property Investor · Kalamazoo, MI · Member since 2019 · 23 posts · 0 votes
5y
@Leopoldo Vazquez
Thank you I appreciate the advice. Since reading this comment I have looked into. I like the idea, my fiancé does not. I've shown her the numbers and she just isn't on board living in a condo. Even if it's in the interim or a short term. She says she doesn't wanna keep moving our family around. I think it comes from her fear or little understanding. I will continue to try to educate her on it as that's a great idea. I purchased my original home with the 3.5% FHA, and I was told I would have to refinance out of it BUT, silver lining is I could use it again. I also have a VA loan I could take advantage of but I think I want to use that on my dream house if that makes sense, idk maybe it's foolish to think that but that's the idea. I have never thought of the idea of renting a condo. I will have to look into more in depth. If I'm not mistaken, aren't there HOA fees associated with condo ownership? It doesn't matter one way or the other, I just would need to get my confidence up when dealing with those as I've read those can be cash flow killers. Maybe I'm thinking too conservatively and need to open my scope a bit. Thanks again for the advice.
Real Estate Agent · McAllen, TX · Member since 2017 · 382 posts · 281 votes
5y
Condos will definetely have HOA fees to take care of common grounds and they amount of the HOA can vary a lot, but you just need to make sure you include the HOA in you rental analysis. If the numbers work then its all good. Story of my life hahahaha my wife objected to moving into a condo as well but she loves the place now. Of course, we renovated the place to her liking and it cost me quite a bit to do that.... which is probably the opposite of what you want to do.
Keep education your wife. It is important she understands what you are doing and why. Try to get her to read some finance books like Total money makeover by Dave Ramey or Rick Dad Poor Dad by Rober Kiyosaki. I had this problem at first, but after slowly seeing what saving frugaly and investing has allowed us to do (buying her dream home, not worry about money when I got laid off among other things) my wife is on the same boat!
Rental Property Investor · Kalamazoo, MI · Member since 2019 · 23 posts · 0 votes
5y
@Jeremy Wirths
Thank you. Yes I have run comps for similar homes in my area. The rent estimates I’ve gotten running numbers fluctuate however. The rents I’ve seen for similar homes indicate I’d get enough to generate at least $200 per mo in cash flow if not more. The appraisal I got at the time of purchase indicated I got a pretty decent deal so with the additions and improvements I’ve made I can only imagine it would be favorable. I just feel since I just purchased a little over a year ago it may not be worth it to refi just yet, or am I wrong in that?