Starting out as first time landlord need help to crunch numbers

Investor · Baraboo, WI · Member since 2019 · 33 posts · 11 votes

2y

Hello BP members,

I am a homeowner in MD, trying to crunch numbers to decide if I should move to TX or not.
My current home A has 320k left on mortgage from 400k @2.5%, with remodelled kitchen and bath.
Current valuation of home is about 580k. Rental approx at 2900/pm.

For new home B, It will be 7.5% for 550k.
Any pointers on how should I run numbers to compare two cases.

Case 1: Rent home A, Buy Home B @7.5%, with potential refinance at 3.5-4% ( ifff thats feasible ) after 2 years, once the rates are down. ( i know high hopes , but I dont think 7.5% is the new normal ).

Case 2: Sell the home, get equity out, pay the whole equity ( dont know if thats wise ) towards downpayment of home B, reducing loan amount to approx 320k.

As a side note, feel free to throw suggestions and let me know its a dumb move to buy property as primary residence and pay 7.5% mortgages, sit out. :) I wont mind at all. I am here to catch your brains and help make a decision.

TIA !

You can buy a home for 0% if you really want to. You just need the right negotiator/investor. You may not get exactly the house you want because your options will be more limited but this can be done.

I wouldn't necessarily let go of that 2.5 interest rate. This is valuable and many creative investors are looking for mortgages like this one maybe you can negotiate this and walk away with extra cash for your next home.

It's all relative. In the end you just need to know what you are trying to accomplish first THEN find the solutions for it. Reach out if you have any questions.

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Shanequa J.

Realtor · Houston, TX · Member since 2011 · 916 posts · 296 votes

2y

How much is your mortgage payment on House A? Account for repairs, vacancies, property management, and capital expense. If you can make a profit, I'd keep it.

Can you qualify for both mortgages at the same time? Depending on the type of mortgage you're getting, House A will limit how much you can buy.

Do you want to be a landlord?

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Manish P.

OP

Member since 2020 · 4 posts · 0 votes

2y

Thanks @Francisco Hernandez for the response. My end goal is to relocate to TX and in the interim , if I can use this opportunity to hold on to one door as a rental property( my current home ), I would like to assess the financial merits and demerits of the same. Having said that, I am not sure if I follow your suggestion of "negotiate and walk away with extra cash". If you can share some more info on that, I will appreciate it.

@Shanequa J. Thanks for your reply. I did accounted to the said expenses and I believe it will cash flow of $500. Regarding two mortgages, thats a great point and I will check with my lender on that.

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V.G JasonPro Member

Investor · Member since 2022 · 3k+ posts · 3k+ votes

2y

If you can keep the former house, definitely try to. Make sure your DTI is fine, and you have the liquid downpayment to get the 2nd house. If not, it is what it is and if you personally want to move to Texas than so be it and you may need to sell it.

Now, if you can keep the first one and still afford a second one then great. Don't bet on rates coming down to 3.5-4% in 2 years or so. If that happens after you buy, that's a great problem. If you're penciling it on, on your buy that's a bit optimistic and you'll have to likely understand your house value would then appreciate re-creating a re-finance loan with a new & higher tax basis and insurance which would likely not make it as affordable as you are penciling in.

My best advice is to look to buy a value-add, something on the MLS for longer days or off-market. Rehab it some and then re-finance it and live in it. This is if you are able to keep the 1st property.

3 Reply

Charles Perkins

Member since 2024 · 222 posts · 161 votes

2y

Additional thoughts.

First if you keep your existing home, you will probably have to use a property manager because of the distance. So not only will you be a landlord, you will be a long distance landlord. Do you have anyone you use for repairs, this will be a consideration done the road.

Second, you will want to factor in reserves for the unexpected. There will be vacancies, there maybe those who don't pay timely, tenants generally don't take care of your property as you do, evictions are necessary at times. A reserve can help you get by during these times.

As a first rental this maybe challenging, but could be doable. You know your financial situation the best. Make sure you can handle the unexpected aspects of doing business as a landlord financially and with good business sense.

0 Reply

Francisco Hernandez

Investor · Baraboo, WI · Member since 2019 · 33 posts · 11 votes

2y

Quote from @Manish P.:

Thanks @Francisco Hernandez for the response. My end goal is to relocate to TX and in the interim , if I can use this opportunity to hold on to one door as a rental property( my current home ), I would like to assess the financial merits and demerits of the same. Having said that, I am not sure if I follow your suggestion of "negotiate and walk away with extra cash". If you can share some more info on that, I will appreciate it.

@Shanequa J. Thanks for your reply. I did accounted to the said expenses and I believe it will cash flow of $500. Regarding two mortgages, thats a great point and I will check with my lender on that.

There is a lot of variables in your question. A lot of "maybes" if you are ready to be a landlord, then this clarifies a lot of things. If you are in the 'maybe' stage, then maybe this is not the right time for you to jump into that particular field.

I think that's the first decision you need to make before we even elaborate in any more advice.

0 Reply

Bryan Montross

Real Estate Agent · Crownsville, MD · Member since 2018 · 102 posts · 36 votes

2y

I think you are on the right track and just need to keep looking at the numbers. If you are cash flowing $500/mo that seems really good to keep it. However, if the $500/mo does not include maintenance, vacancy, capex, and property management, then it probably actually makes your cash flow negative. Assuming you took all of that into account, then I would really consider keeping Home A when you move. Depending on where in MD I think it should still be appreciating pretty good from my experience in the area. One thing I would throw out to you is that tax savings of selling a primary residence. You may want to rent it for 2-3 years and sell to capture your tax savings.

One other option is to rent in TX when you first get there. That might really make sense if you don't qualify to purchase a second home. For example, let's say your current expenses for housing are $2500. Now in TX you rent for $2200. Now your housing costs are $4700, but you are getting $2900 in rent. So when you subtract that off you are now only paying $1800/mo in housing instead of the current $2500. That still sounds like a win to me.

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Starting out as first time landlord need help to crunch numbers

Starting out as first time landlord need help to crunch numbers

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