On our way, but need insight!

2 Replies

Hello all! This is only my 2nd post but have been gathering loads of info here at BP from reading. As I stated in my introduction, my wife was starting her prelicensing course. She has passed all of her courses and is now studying for her state and national exam to be come an RE. She has a broker that wants her to work for him. He made her a position at his firm (myopenhouse.com) as a Lead Manager until she gets her license.

Anyhow, heres the deal. We are planning to build a home (land already acquired) a few towns over and own the home we are in. We are debating on either selling or renting our primary. Im looking for your opinions! Here are the numbers. Our primary is a 1400 sqft 3 bd 1 bath wood frame home with a 2 car carport that sits on just a hair under an acre, with mature pecans and oaks. I bought the house roughly 10 years ago for 48k. We owe around 35k. ARV should be in the high 90's considering what comps we have in the area. We could probably get close to $950 a month rent, which would put us at $475 monthly profit after mortgage, taxes and insurance ($475 total). Regardless of which direction we go, we will have to rent a place for ourselves until the new house is built. The rental profit would most likely only offset our the rent we will be paying in the next town. What would you do?

I am a buy and hold guy so I would keep it and rent it. Here are a few things for you to consider though.

1. Will you be able to obtain a second mortgage if you keep the first house? 
You have to look at your income and your DTI. Unless your main occupation is as a Property Manager/Landlord your bank may not count your rental income from your first house towards your total income. That would leave you (on paper) with 2 mortgages that you must pay on your own. Do you have the income to support that? Most banks will go up to 35% DTI but any higher and you will have issues getting the money to build your second house.

2. Is there any differed maintenance on house A?
If you think its solid and wont suck up your money definitely keep it and rent it. If the roof is 20 years old, siding falling off or anything else that will require thousands of dollars in the close future you may not have the capacity to deal with it. If you have the ability and/or the cash on hand to address big time issues then keep it.

3. Do you want to be a landlord?

4. Are you familiar with landlord/tenant law?

Be honest with yourself and your abilities. You will find your answer.

Thanks for the reply @james klafehn. Im not sure if I would be able to obtain a 2nd mortgage as I havent tried. Now I do know that I would be able to obtain a construction loan/mortgage if this house was sold. I currently have sole income of 100k + at my job. I have a few things to finish up here at this house. Siding is a year old, roof is about 12 years old. Id hate to get rid of it as it has great income potential, but I dont want it to hinder the build of our new home. For many years Ive wanted to have a few rentals for income but was never in the position to do so. As far as landlord/tenant law, I am somewhat familiar but I have a good friend that is a RE Attorney. I have construction background, so performing maintenance and fixes wouldnt be a problem. If anything Id like to hold it as a rental for about a year, until just before we build. My dilemma is we are looking to move to the school district where we are building, before the beginning of next school year as I dont want to pull my children out of their current school mid term. 

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