Background: This year, we refinanced our primary home from 30 to a 15 year conventional to lower our rate from 4.75% to 3.5% and to finally end PMI. Originally, we were not entertaining the idea of moving anytime soon, but we have been considering renting out our home and buying another place in our city towards the end of 2018, or beginning of 2019.
Our place is a 37 year old 3 bed, 2 bath, 1 car, 1,200sq ranch in a suburban area. The property has 1/2 an acre of land (typical for my neighborhood, unusual for our TN metro area) and is fairly updated with a wood fireplace, granite, hardwood, crown molding, and a newer roof/windows/doors.
We have occupied this property for over four years. As of today, we owe about $125,000 on a home that appraised for $153,000 in May 2017. The home comp'd out in the middle-to-upper area and could theoretically be sold on the retail market in "move in" condition. Our current payment (escrowed) is $1,016. Market rent on a home like ours is $1,200-$1,300.
Our Plan: When the timing is ideal and we are ready to make some moves, I am considering refinancing the home back to a 30 years term. This would allow us to remove the equity to put down/repair another home that would be our primary residence, and turn the math on our current home into something that has positive rental cash flow. Our rate would increase about 1% for an investment-property loan, also. Assuming HOI on an investment property was the same (i'm sure its not), here's my figures:
$660 - mortgage at 30 years at 4.5% estimate
$60 - property tax (appx $700 annually)
$70 - insurance (appx $800 annually)
$60 - vacancy at 5%
$83 - maintenance (est $1k annually)
$1,200 - conservative market rent
Cash flow: = $260
Our "next" home is highly fictitious, but I intend to spend a similar price and search for something that needs some cosmetic work for quick equity with the intent that we may eventually rent that home out later in life, as well.
Would these figures make sense? Or should we consider another idea?
Again, thanks for your opinions and advice.
Let me start by saying I'm no expert by any means! But I am in a similar position I have recently rented out my primary residence after moving in with my gf . From what you said it sounds like you would like to get into rental properties and are willing to make some sacrifices to do it. I think it would be much easier to just buy a second property and rent it out especially if you could make it cash flow . The only reason I would see you needing to go through all the trouble of refinancing again is if you needed the money for the down payment in the long run leaving the 15 year mortgage saving for 2 years and buying a second house as rental would probably be best and my guess is the market will be a little softer in 2 years and if the market does go down in the next few years you could have 2 houses one upside down and with no equity but hopefully still cash flowing but I'm no expert and I live in California where cash flow doesn't exist unless you bought in 2011