What would you do in my position!?

16 Replies

So I feel like I am stuck in the middle and don't know what would be the best thing for me to do. Here is my story and the dilemma I am in, I hope some of you are able to give me advice and guide me to the right decision!

So 2.5 years ago I bought my very first ranch style house for $210,000 here in Northern Colorado. It was a brand new construction home with all the bells and whistles, like granite countertops, stainless steel appliances, valued ceilings. It is a patio home (maintenance free living) 3 bedroom 2 bath home with a master suite, unfinished basement. Total sqft is 2,600. It is in a great location right across from a great school, also walking distances from a rec center, park and basement fields. 

My plan WAS to refinance my personal home into a conventional loan and then go buy a duplex, 3 plex or 4 plex AND then make my personal home into a rental and rent it out because it is in such a great location and I can get top dollar for rent. But the situation I just ran into when I tried to refi is that I wrote off to much on my taxes :( So I only have shown that I made $65,000 total in both years plus my debt to income ratio is a little high right now (working on getting that down currently) So I am in a possession where I can't go this route until I show more on my taxes and get my debt to income down. 

My second plan is to possibly sell my home, get the $70,000 (after I pay a $23,000 tax lien and closing fees, etc.) as my house would sell for around $290,000 and get the equity out and then go buy a duplex, 3 plex or 4 plex. The duplexes, 3 plex and 4 plex are selling for around $400,000 + in my area. 

What would you guys do in my position? I know that I have read and heard to NEVER sell any of your properties but I feel like it might be best in the situation that I am in to take advantage of the equity in my home, pay off my remaining debt and then live in one of the units and either have most of my mortgage paid for or have it all paid for. 

@Melissa Harris Are you sure that your DTI is being calculated correctly? If you're converting the primary to an investment, you can count rental income on that property to offset the mortgage. Typically the underwriter will want to see a lease and cleared security deposit but you can count 75% of the gross monthly rent as income. Also you will be able to count rental income from the other units you don't occupy in the new property. That should take care of most of the mortgage DTI issues. Do you have a lot of other debt aside from that? Might be worth having another loan officer look at your scenario in detail.

Jared Bouzek, Affordable Interest Mortgage | [email protected] | 720‑984‑2516 | CO Lender # 1428276

I was in a similar situation with not showing enough income, which affected my DTI (I actually had no debt) but just closed in a duplex today. Lender was able to count rental income on my primary PLUS rental from the other half of the duplex. PM me and I can give you my lender's contact.

@ Jared BouZen at the moment I still live in my primary residence and have not had anyone live with me to show that I am collecting rent. So I think my first problem, right? 

And no I don't have much debt, the biggest debt I have currently is my mortgage and then my brothers truck which is $27,000 (this is the debt I'm trying to get out of my name but my brother has bad credit and so he can't take over the loan or pay the gap if I sell it) Other then that I don't have any debt. My credit score is 720. I am definitely going to talk to a few more lenders to see what they have to offer.

@Melissa Harris If you do both the refinance and your new purchase simultaneously you can count rental income from both properties.

Jared Bouzek, Affordable Interest Mortgage | [email protected] | 720‑984‑2516 | CO Lender # 1428276

@eric c. That's very interesting! Ill definitely pm you and get your lenders info. 

So do you think I should try to keep my primary as a rental, move out and move into one of the units in the duplex OR do I sell my primary and get the equity out of it and just have the duplex?

@jaredbouzek I did not know that! So you think it's best to just keep my primary but fully turn it into a rental and then buy the duplex as my primary and live in one OR should I just sell my primary get the $70k and just have the duplex?

Sell your property. Use equity for a 5+ where "DTI" isn't a thing

@codyl That's a very good point! 

Now how do you get a tenant out of a unit to where I am able to move in. Do I offer them cash for keys? What if they don't accept? Should I move onto another deal?

You paid full retail price, so it doesn't make a good rental property. No cash flow. Sell it and invest in a better cash flowing investment.

That's a good point. I didn't see it that way. I do need to focus on the cash flow and what it will bring me in the future. Good advice!

Originally posted by @Anthony Dooley :

You paid full retail price, so it doesn't make a good rental property. No cash flow. Sell it and invest in a better cash flowing investment.

Why would you say that without even knowing how much her house can rent for? 

Because when you pay market price for a property and rent it out for market price, there is no profit margin.

Do the math. What would your home rent for? Can you qualify for 2,3,4 unit property if you sell? Would you have sufficient funds to buy 2,3,4 unit if sell home? What would the rents and cash flow be? Then other questions. Are (and family?) willing to step down to living in a multi family and house hacking? Can you step it up at work for a year or two, and go "Dave Ramsey" to pay down debt and save funds to invest?

Originally posted by @Anthony Dooley :

Because when you pay market price for a property and rent it out for market price, there is no profit margin.

The only problem with that statement is that it's not true. If the going market price for a home in a certain area is $150,000 and market rent is $1,500 a month, then you have a profit margin. Of course, you would have a better profit if you bought under market value, but just because you bought something at retail price does not necessarily make it a poor investment. 

Anyway, to the OP: if you can share what your mortgage payment is, and what the home would rent for, the folks here could give you a lot better answer to your question.

@James Marshall nobody pays $1,500 for rent of a $150,000 property that they can buy for $900 per month. Especially in Michigan. Paying retail is not investing, it's just buying.

So here are the numbers if I would keep my house as a rental and not sale it. Bought it in 2015 for $210,000. Since I bought it before the builder broke ground, I did in a sense by it just under market value. If I would have bought this home when it was fully completed, I would have had to pay somewhere around $225,000 for it. I now owe just under $205,000. Mortgage Payment- $1,300 PMI- $143 Water- $50 HOA- $130/month I can rent my home out for $1,900-$2,000 a month. I know I need to figure in vacancy & maintenance fee (property management) even though I do plan on doing property management. What type of percentage do I figure for these two?

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