Should I buy a 2nd property or just rent?

Question

Hi, I'm new to the forum and was hoping to get someone's opinion on this investing plan.

Bought my 1st condo (2 bdrm/2 bath) in the SF valley about 2 years ago but want to move closer to work so planning of renting my current condo for the mortgage + HOA  costs ($2500) & moving to Ventura county.

Option 1: Rent in ventura is around $1900 for a studio.

Option 2: So as another option, I'm thinking of buying a 2/1 condo (~$350k // 5% down, funded by liquidating stocks) in Ventura.  Mortgage + HOA = ~$2300. I would live there at least for a year and then I'd have the option of renting it out, believe in a year rent price would at least cover $2300.

Buying - Pros

- Higher leverage - take advantage of only putting 5% down to have another investment property in 1 year, rather than 20% required for typical investment properties.

Buying - Cons

- Unsure if the bank would allow me to buy another property due to debt/income (DTI) ratio. I currently live in my condo and don't rent it out. I would need the condo to count as future rental income in order to get the DTI low enough to qualify. Any insight if it's possible to get a bank loan?

- Higher risk - I've never rented a property before so I might stumble a little with getting it rented out, etc which could lower rental income.

Other info: income=$100k year, only debt is current mortgage, making DTI = 30%

Any thoughts or advice, specifically pitfalls that I may fall into?

Nicole Heasley Beitenman · Answer

Talk to a lender, but generally speaking, they won't consider the rental income until it's on your taxes for 2 years. However, I don't believe that's a law, so you may be able to find a lender who can work with you.

I would disregard the "risk" of low rental income because you haven't been a landlord before. Either you want to invest or you don't, and part of investing is getting a "for rent" sign up somewhere. Band-aid's gotta get ripped off at some point, and the sooner you do it, the better it'll be for your confidence, your wallet, and your lendability. As far as the DTI, that's another thing to discuss with the lender. Are you willing to house hack? While I doubt the lender would take that into consideration, it's worth a discussion!

Lauren Vogl · Answer

Hi Andrew,

I live in Ventura and I'm an Realtor but I handle leases around here as well. I get so many calls on rentals, I've had 30 in the last 4 days on one listing. You should be able to rent yours in two weeks, no problem. Why rent if you can buy? Renting is not that hard, you can do it! And if you hire someone to do it for you the first time but it gets you into a property, seems worth it to me.

Andrew Litton · Answer

Thanks Nicole!

I reached out to 3 lenders with the lowest rates on the bankrate website. Two of them got back to me.

1. Better Mortgages - They don't do "future rental income" assessment. I'd have to show 1 year of tax returns with rental income.

2. Blue Spot Home Loans - They said they'd consider, “future rental income” if you secure a lease agreement AND security deposit for rental of your existing condo prior to final loan approval for the condo you will be purchasing.

So with Blue Spot, I'd have about a 2 week window to find a renter and have their deposit clear. Seems doable but I'd have to advertise a very competitive rate in order to fill the condo quick.