Accountant · Tallahassee, FL · Member since 2016 · 36 posts · 14 votes
Hey guys,
So I have this house I live at/own located in Tallahassee that is appraised at $105k. I owe $70k on it. I need to move to Orlando for job reasons, and I need some advice. I will be buying and living in a house in Orlando as well.
Obviously I have a lot of options. My goal is to live off of passive rental income, and quit my 8-5 job asap.
-Rent out house in Tallahassee for cash flow (Profit) of $350-$400 a month.
-Cash out refinance and rent it out?
-Heloc and rent out?
-Sell and take profit of $35k for new house?
Has anyone here been in a similar situation? What is my best option to reach my goal?
(Also, I have $70k in other equity (current have to sell and is up for sale now)set aside for other opportunities).
With your goal of owning property and living off the cash flow, I'd say keep the house and rent it out. In a few years you'll have some equity to pull out or sell it and 1031 into a larger building with more units, or just let it keep riding.
With your goal of owning property and living off the cash flow, I'd say keep the house and rent it out. In a few years you'll have some equity to pull out or sell it and 1031 into a larger building with more units, or just let it keep riding.
So I have this house I live at/own located in Tallahassee that is appraised at $105k. I owe $70k on it. I need to move to Orlando for job reasons, and I need some advice. I will be buying and living in a house in Orlando as well.
Obviously I have a lot of options. My goal is to live off of passive rental income, and quit my 8-5 job asap.
-Rent out house in Tallahassee for cash flow (Profit) of $350-$400 a month.
-Cash out refinance and rent it out?
-Heloc and rent out?
-Sell and take profit of $35k for new house?
Has anyone here been in a similar situation? What is my best option to reach my goal?
(Also, I have $70k in other equity (current have to sell and is up for sale now)set aside for other opportunities).
Alexander,
Several things you need to know: (you might not like what I am going to say but below is the truth - NO BS unlike what some of the gurus will tell you)
When you rent the house, your cashflow is equal to the Rent less mortgage less expenses. I am assuming the $350-$400/month is based on Rent less PITI (mortgage payment plus taxes and insurance). If so, your actual cashflow will probably be around $100-$150/month because you will have to pay a Property Management fee (10% of rent) as well as repairs and maintenance (because the tenant is not responsible for it).
When you sell a house for $105K and you owe $70K, your profit will NOT be $35K. Far from it. Why? When you sell, you might need to pay for a real estate agent. The buyer will negotiate down the price, you have holding costs to pay and you have closing costs. Deduct about 10%-15% from the $105K so you might end up with $15K-$25K profit.
You can also sell the house rent to own. Jack up the price 10% and sell it for $120K and increase the rent a little bit. When you do this, you don't pay closing cost upfront, usually you don't need a real estate agent to sell and your holding cost can be minimal given that a rent to own home will have more buyers given that there are more people who can't buy a home because of credit and/or downpayment vs. people who can. You should also get a $5K non refundable option consideration.
So, the answer to your question is: it depends on what you want and what you're willing to give up/ invest (time/effort).
If you choose #1 above (rent the property), you will receive trickles of money after all the expenses. $100-$150/month is my guess. BUT, you have the property long term and will benefit from the loan-paydown as well appreciation (once the property is paid off, it could be worth $200K, so the over-all profit you will make long term is probably around $300K). One thing you will need to invest is your time overseeing the property manager managing the property because you will be out of state.
If you choose #2, you get a bigger chunk of cash, tax free - $15K-$25K. You are done with it and you can move that cash to a property local to you. You give up this property.
If you choose #3, you have the property medium term and when you sell, you will make $40K-$60K profit (over the next 3 years), higher cashflow (probably $200-$300/month) but you give up the property's long term benefits and you will still be managing the property out of state.
Iv'e only rented out in the city I live in, so this would be a new and scary experience for me. I have a hard time trusting people (Property Managers) with such valuable assets.
What if water heater breaks, or AC Unit breaks, or leak in roof etc..
How do I handle this from 5 hours away? Do I need to handle it?
Can I find a property manager that will deal with EVERYTHING? How much would that cost me?
Yes, you are correct in option 1 that my actual profit would be lower.
I think a property manager is the way I want to go... but what is holding me back from that is Iv'e never had one, and I would be in a different city. It scares me, because I will be working 8-5 and won't be able to deal with tenant issues at all. In your experience what is the most a property manager will do?
The PM will have to market the property to lease it, send you tenant applicants and screen them for you, handle repair request and coordinate with it with the right contractors and communicate any issues (tenants, repairs, etc) to you in a timely manner. He/she can also coordinate with utility companies and the city for any inspections.
The key is to find the RIGHT property manager.
Interview 3-5, get references, etc. Or, ask 3-5 real estate investors in your area for referrals on good PMs. Then you interview each one.
I agree. Keep it and rent it out, just find a great property manager. The property manager will take care of everything for you, no need to be scared. Welcome to Orlando!