Is my current home a bad deal?

9 Replies

Just closed on a home in December. This was before I knew anything about real estate investing and just wanted a nice rental. Well to me at the time it was just a nice home in a nice neighborhood. Now that I have actually pursued education in this field, I feel I know what needs to be done to get started. 

Bought this home with a VA loan, appraised at market value. 1600 sq. ft in Tucson for $225K. 2 Story, 3 bed 2 bath upstairs is a master suite. My stand on it is that I should just sell. I would have to dump $20-30K of money in it to maybe make $5K in return. So an increase in equity doesn't seem like the route to go.

I also am not seeing much profit renting. Mortgage is around $1400 so Id be lucky to make $150 positive cash flow, so by the time a year rolls around if I even have one month of vacancy there goes all of my potential profit. 

Just trying to get some input on my situation. I am also married and may be considering house hacking if we can ditch this property. Thank you for your input!!

Hey man, I ran into the same situation with a house I had at Ft Bragg. The VA loan was great, but I was over-leveraged. Any repairs, vacancy, tax assessment, anything blew out all my cash flow.

We’re in a situation in Tucson where housing prices are back up to pre housing crash prices and the rents aren’t as high. You think you can get over $1500 for a 3BR out here?

@Justin Michael Johnson

Please bear in mind Real Estate tends to be a long-term game.  

What is the driving the move out of current home?  It sounds like you purchased it because you like it and the neighborhood.   You did not buy it as an investment play but it met your needs at the time. 

 It sounds like you considering three options:

  1. Sell it.  If you were to sell it and make a $5k return on it, is that worth the trouble of making all of the renovations/upgrades, coordinating contractors, and listing/selling the property?
  2. Turn it into a rental. I am assuming you meant a $150/month cash flow ($1,800/year). If you were going to invest in other rental property, have you considered your investment criteria (cash on cash return and/or cash flow/per door per month)? If so, how does this home measure up? On the downside, if you turn this into a rental property immediately, what financing options would you have to secure your next property (assuming that would become your primary residence)? Would that also be a VA loan?
  3. Buy a rental investment property.  You may be able to put the 20k-30k that you were going to put into your current property and put the down payment on a rental.  That may result in a higher cash on cash or cash flow return since you would be acquiring as an investment play.   

The good thing about real estate is there are many different avenues one can take.  You just have to figure out where you want to go.

Good luck,

From a rental perspective from what you’ve told me yeah your primary is no good.

Any long term appreciation at work there ?

@Louis Fernandez   @Justin Michael Johnson

Real estate is a long term game.    Tuscon is not a market people really think of regarding cash flow, but definitely for appreciation.   

Talk to a lender and find out how much your property needs to appreciate for you to be able to refi out of it ito convert it to a conventional loan where you still are NOT paying any PMI.

Then, when you do that, use the VA loan again, but this time buy a duplex or triplex with the VA Loan and house hack. Then you have money coming in from the tenant you place in your house, and money coming in from the tenants at your duplex/triplex.

I do not know how close you are to U of A or Raytheon, or even the university district around U of A, but any of these areas will keep their value for a while. I am in a very similar situation in Tempe, AZ where I am outside the immediate area of ASU, but I am well within a longer bike ride or short (less than 10 min) Drive. I am not cash flowing well now, but my goal in purchasing it is that Tempe is a landlocked City and Maricopa County is the fastest growing county, meaning people are always moving in, while the current building permits do not necessarily support the assumed growth coming in to the city. With these factors, I know long term the house will appreciate well, and the rents will continue to rise. This, plus the extra 100 a month I will receive once PMI gets refi'd out, will set this up nicely in the long run. Was it a great first buy like you hear a lot on the podcast? No particularly. But, it was a great first step into investing and my roommates pay a lot of the Mortage right now. I consulted a few different people, and for my goals, they all said the same thing. Keep the house, and wait for time to bring the value up. Feel free to message me if you want to know more about the analysis that I did!

@Justin Michael Johnson I've been a real estate investor for the past 8 yrs in the Tucson area. If you want to get together for a cup of coffee to discuss some potential options let me know. I'm also a licensed realtor with Tierra Antigua Realty so if you would like to list your house or buy an investment property I can help you with that as well. Thanks, Kelley Roberts Realtor/Investor Tierra Antigua Realty

@Justin Michael Johnson So at the moment you haven’t said what the “better option” looks like. So it’s hard to know if you’re juxtaposing $150 per month vs. $200 per month or $700 to month. There’s a lot of “grass is greener” mentality in real estate investing and it doesn’t sound like you know (today) how what you own pencils out.

Are you estimating a monthly rental rate of $1550? 

Your rental income estimate for Tucson is way too high and unrealistic.  A 3 bed 2 bath in Tucson in a good area is typically $1100-$1200 a month.   

Of course you wont cash flow with zero down. The VA loan is an owner occupant loan, so Im assuming you live in the property.