I am a 61 yr old woman who owns my home outright. I decided to rent my house and garage apt last Nov. for a combined $2200/ month while I visited relatives. Their contract will be up at the end of May. This has been my only income for the last few months due to health issues.
My goal is to continue to be involved in real estate investing and am trying to decide what would be the best way to acheive that. I have bought and flipped five houses and have always done well. I just love doing this and can make so much more money than anything else I can do. As I've gotten older I have become more concerned about cash flow and want to make sure I make the best decision concerning this property.
Issues that would affect my situation:
°Health issues that have prevented me from continuing my profession as a hairdresser.
°No savings other than equity in house. Market value of house is $130,000. I paid $44,000 cash plus $30,000 in rehab.
°650 credit score
Options that seem available to me:
°Find a another type of work for cashflow (seems pretty overwhelming) and live in house. Try to improve credit score during this time.
°Find another tenant to rent house and continue to use house for cashflow longterm. I would find cheap place to live, find a job, improve credit and then try to get loan to invest in another house. From what I know it would take two years before I could use home as income to help with getting loan.
°Sell house, get another job and try to get loan with my credit score. I obviously don't want to put so much cash down this time.
The reason why I'm struggling so much with this is that it has turned out to be such a good rental property. I'm getting $500 for my tiny garage apt and $1200 for the house. I don't see this property growing that much in value because the neighborhood is a transitional one that doesn't seem to be swinging up.
I apologize for the length of this post. I don't seem to have the wisdom I need to discern what is the best route to take. I appreciate any thoughts you have and words of wisdom.
You said you were getting a combined $2200 for the apt/house in your first paragraph, but stated at the end it was $500 + $1200? Where is the additional $500 coming from?
I don't have much advice for your situation since I have no idea what your holding costs are, but it sounds like it is cash flowing pretty well. If it is cash flowing more than you would pay in rent, it is probably an ok deal to keep as a rental.
I did notice that you said that you have to wait 2 years until you can count the income from the property towards a loan--that is not actually true for all loans. I don't know about Freddie, but Fannie underwriting guidelines now allow you to claim income that you claimed against your taxes immediately. It also allows you to use an executed lease for 75% credit if you haven't filed taxes on the property yet (say you just started renting it in January with a lease). A lot of lenders will ahve stricter guideliens than this, but that can just show you what is available.
I personally think that of the options you presented, number 2 would be your safest long term strategy. It provides you with consistent, relatively safe cashflow for years to come and allows you to build up the capital to do your next deal while you improve your credit score.
Thank you for such quick responses. I am getting ,$1700 for my house. and $500 ,,for apt but this is all inclusive. The utilities,cable,ins,taxes cost me about ,$500/month. I have no mortgage on this home so my profit is $1200/month.
Good to know about other loan options. That makes me feel better.
I just realized I didn't explain that the renter wanted the rent to be all inclusive so I'm asking $1700/month but that includes the utilities etc which average $500/month. Taxes and ins are $250/month. I have no mortgage so my net profit is $1450/month.
I'm not doing a good job explaining the financials. Here we go again :-)
Both the house and garage apt include utilities. I have combined both of the renters utilities here.
Garage apt. $500
Net Profit. $1450
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