Newbie Plan. Thoughts?

Question

I currently own a home but I’m looking to move and rent out my current home. My mortgage rate is 2.875% so I don’t plan on refi to get equity out. I have 100k in equity in this house and plan on using a home equity loan to get about 65k in equity out as a down payment for my next primary residence. New primary mortgage will be about $2500 a month, old house that I will rent out long term is $1000 a month. Plus about $600 a month for Home equity loan payment. I expect to get $2,200 a month for rent and will manage it myself. That takes roughly $600 a month off of my new mortgage.

I also have money saved up for a down payment on another property. I’d like to get started with a Airbnb/short term rental in northern Michigan. I have about $20k saved up there but I do have a partner who is also willing to go in 50%

what are your thoughts?? Good plan? Things to look out for? Things you would do differently? Also if there are other investors in the Detroit metro area looking to work together I’m interested in at least having a conversation!!!

Caleb Brown · Answer

I would do one thing at a time. Use the 20K as a down payment on the next house hack and don't touch your current properties equity. If you wanted to do a 1031 exchange down the road to use that equity and trade up then that'd be a good idea.

Travis Timmons · Answer

Agree with @Caleb Brown - go slow and do 1 thing at a time. I don't know how much you like your current home, but don't let a low rate convince you to keep a property that is not a great rental. There are also few things better than tax free cash if you want to sell it and move out. We have a handful of rentals, and none of them pencil out exactly like we thought they would. Some are better and some are worse than we expected. The pro-forma estimates just don't  provide enough information to plan long term. Do 1 thing, stabilize the property, and then move on to the next.

On the short term rental, I would encourage you not to partner. Getting a short term rental to market is death by a thousands cuts. You spend so much money before you make a dime of booking revenue. It's really stressful, slow, and expensive. Having a partner that is also new and does not know what to expect is a recipe for disagreement, strife, unmet expectations, etc. I do understand that not partnering pushes back your timeline substantially...I'm in the slow and steady wins the race and stay small, own it all camp, though.

Drew Sygit · Answer

@Stephen Fleming your cashflow probably won't be what you think it will be:(

Have you factored in the new property taxes at homestead millage rates?

How about the increased home insurance cost for a landlord policy?

A HELOC comes with a variable interest rate and all signs are pointing to no further Fed rate cuts in 2025 - and there may even be rate increases.- So, you may want to consider locking in an interest rate via a 2nd mortgage.

Do you have reserves for unexpected expenses?

How many weekends do you want to drive up north to find, purchase, setup and maintain an STR? The members here on BP that talk about STR auto-run systems didn't install those systems and find dependable cleaners & handymen overnight.

Wale Lawal · Answer

@Stephen Fleming

From my experience working with over 400 investors, your strategy of leveraging a low mortgage rate, tapping into home equity, and diversifying with a short-term rental (STR) in Northern Michigan is well thought out. Retaining your current home at a 2.875% mortgage rate maximizes cash flow, while accessing $65K in equity provides liquidity for your next steps. However, consider STR seasonality, local regulations, and management demands, and ensure your equity loan and new primary residence costs fit comfortably within your budget. Fine-tuning your savings, building a reserve fund, and running detailed ROI projections will help solidify your plan for long-term success.

Good luck!

Caleb Brown · Answer

If you are house hacking you can utilize 3-10% down. 20%+ is great to put down but not always possible. I would also target ones that are ideal for renting out when you move out so maybe do a lower price point.

Tim Delaney · Answer

Is your new house going to be a househack? Or can it be? That would be a helpful addition to your plan as you would further reduce your cost of living.

Also don’t forget from that $600 you are planning on getting in cash flow you have taxes, insurance, maintenance, capex, and vacancy to consider.

With two homes, you may want to keep that extra $20k as an emergency fund rather than spending it on a third property and then be left with no emergency funds.

Newbie Plan. Thoughts?

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