Questions about a first possible rental

5 Replies

Hello Everyone,

I am completely new to RE investing, but I have been thinking a while about a possible way to get my feet wet into rental properties, but I'm not sure how exactly it can be done. 

Back in 2014 my mom bought a new construction townhome in downtown Anaheim in California. It is in a very good area and neighborhood, 5 minutes from Disneyland, less than 10 minutes from Angel Stadium and the Honda Center and close to schools. It is a 3 bed, 2.5 bath 2 level 1300 sqft townhome, she purchased for 435K. For anyone not familiar with the Orange County market the prices are astronomical right now and pretty much at their peak. She used the proceeds from the sale of her previous home and put a 200K (!?!?) down payment into this current home under a 30 year conventional loan at a very low 3.6% interest rate. I do not live with her, so there are 2 vacant rooms. I am a real estate agent in my area with MLS access so I am very familiar with the comps, rentals, etc. and her exact unit would rent out around $2500-2600 a month. Her current mortgage payment is $1080/month because of her large down payment, and the PITI along with the HOA fee is a total of $1800 / month. All said and done it costs her about $1800 a month to pay for all of her home's expenses.

I am trying to think of a smarter way to use those 2 vacant rooms in her home, as she lives by herself and does not need a home that large especially with 2 empty rooms. I want to rent out the entire home and find my mom a smaller home to live in. The problem is she does not have enough cash reserves for a down payment on a new smaller home to purchase in order to rent our her current home because the prices are so high in Orange County right now. I've brought up the idea of her just renting out the 2 other rooms and still living there, but she rejected that and I understand because she is older and lives by herself and does not feel comfortable having strangers live in her home with her. 


-bought the home in 2014 for 435K

-put 45% down with her own cash 200K 

-she owes about 212K 

-conventional loan 30 year fixed at 3.6%

-lives in home by herself, 2 vacant rooms 

Is there any way, ideas, or strategies to use the equity she has in her current home or refinance to pull cash out to have enough for a down payment on another smaller home so then we'd be able to rent out the current property? I don't know much about refinancing or HELOCs I've read up about them but I wanted to ask BiggerPockets to see what others had to say about what possibly could be done. Thank you everyone! 

@Dean Ho Is there a lot of equity? The key is to cover both the rental expenses and New home expenses. It doesn’t make sense to put your mother in distress. My opinion is either sell this property if there’s a peak and use the proceeds to downsize and invest. The other plan is to find a rental for her and rent the entire townhouse. The best option is maximize the numbers.

@David Michael  She has about 51% equity in the home. Got it so I'd pretty much just have to run the numbers and see what will work and make sense. An option could be to sell as the prices have gone up, however the area she is in is undergoing renovation and becoming a hot area part of me is thinking to keep the home long term to rent out in the future. Or we could sell, take the cash out and the appreciation and invest in a couple smaller homes. Thank you for the feedback I appreciate it! 

@Dean Ho I think you should sell high than low. Take advantage of the market and who knows market might dip to allow you to purchase The same townhouse cheaper. With that much equity run the numbers and see if you can keep both without straining your mom The key is run your numbers and see which doesn’t strain her.

@Dean Ho please stop and read you own post very carefully again and think.  This is NOT a reflection on you, just some constructive criticism.

1.  You are NEW to investing...

2.  and most importantly you are dealing with your Mom's money and home.  

    a. "she lives by herself and does not need a home that large especially with 2 empty rooms" maybe she likes it like this. Did you ask her?

   b. "I want to rent out the entire home and find my mom a smaller home to live in" Mothers will do anything for their children, but please think of her first.  Is this what she wants or you?

   c. "she does not have enough cash reserves for a down payment" is she politely telling you something?

   d. I've brought up the idea of her just renting out the 2 other rooms and still living there, but she rejected that"  This is the most telling sentence of all.  

3.  If you want to invest then I would suggest learning what to do first before you involve your mother in something you are not sure of.  We are at the top of the market again and it may not be a good time to move those "pieces around the board" here in California. 

4.  I am happy to discuss how to become an investor, all you need to do is ask.

Good investing...

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