Currently we live in a new construction single family home we purchased with a VA home loan. We will be moving with no intention to move back into this home.
With 7 years left of the military we would like to start building our real estate portfolio.
If we rent it would potentially clear $200-$300 monthly. The game plan for our next move is to find a multi family home we can house hack.
(I will add that we had a rental property and sold it last year as well)
I cant decide if it is better to keep this home and let it pay off in the long run or sell and use profit to put down on the next location.
I keep going back and forth and could use some pointers. Thanks!
@Christina Colon I would be happy to help you answer this in more detail if you would like to chat on the phone.
Otherwise, in order to make the most informed decision, what do you think it would sell for? How much do you owe on it? (what is your equity stake)...did you live in it for 2 of the last 5 years in order to be eligible to avoid paying capital gains tax?
Is the 200-300 a month factoring in ALL expenses? Maint, cap ex, vacancy, etc....or is that just the gap between your mortgage and potential gross rent?
I think it depends on how much time and effort you want to put into it. If you have a great property manager (or have time to manage it yourself) then keep it if it cash flows. If you have enough equity in the house that you'll have a decent amount of cash then you might also have the option of purchasing something closer to where you're moving. It just depends on your long term goals and strategy. Thank you for your service as well!
@Christina Colon I would be happy to help you answer this in more detail if you would like to chat on the phone.
Otherwise, in order to make the most informed decision, what do you think it would sell for? How much do you owe on it? (what is your equity stake)...did you live in it for 2 of the last 5 years in order to be eligible to avoid paying capital gains tax?
Is the 200-300 a month factoring in ALL expenses? Maint, cap ex, vacancy, etc....or is that just the gap between your mortgage and potential gross rent?
Exactly this would depend on a couple factors, if you have someone to manage the property there, if you have enough equity that if you sell if you can reinvest that money into a property or two with better cash flow, analyze both options and think about it, be honest with yourself on the numbers, trust the numbers and they will decide for you
@Christina Colon I would consider the leverage you have available. The VA loan is of course 100% LTV meaning 0% down payment - full leverage. And you can only have 1 VA loan at a time, so in order to do that again you'd have to sell. Maybe others can shed light on if you can refinance out of the VA loan into a conventional investment property loan (20% down) and then have the ability to use the VA loan again to buy your next one with 0% down?? That gets a little into the weeds...
Short answer to your question, if you are cash flowing on a property you put 0% down on I think that is a very wise use of your capital. My gut tells me to let it cash flow with less in the property - consider your ROI in a couple years (depending on how much you put into the home after you bought it). This assumes you have the ability to put 10-15% down on the next owner occupied multi you're planning to buy.
We currently owe 380k on the home. It will sell between 410-425k. We do currently live in the home so we would be able to avoid capital gains.
After factoring in property management, vacancy,and repairs we will have $150-200 cash flowing.
The area we live in is Bettendorf IA. It is quickly building up and growing. This is mainly what its holding weight to hold it. Long run I would take the risk of capital gains and realtor fees.
@Alexander Zurn thanks for taking the time to respond. I think the other issues is it is a new construction so there really was not much room for improving the property.
I will say that my last rental property and this property were both VA home loans. Based on a move VA allows more than one current loan.
I like your thought of seeing what ROI it can bring in a couple years.
@Christina Colon I'd let the numbers help make your decision. I don't mean to question your math, but curious what the house would rent for. It looks as if it is somewhat of an expensive property and curious if it meets the 1% rule? Does it rent for close to $4k a month? If not, I don't think you will get $150-$200 of cash flow.
How are you running your numbers? Here's how I typically run mine; curious what it would like with these calculations:
Rent
- Mortgage (principle, interest, taxes, and insurance)
- Vacancy (7% of gross rents)
- Property Management (10% of gross rents)
- Maintenance (5% of gross rents)
- Cap Ex (5% of gross rents)
= monthly cash flow
If this gives you a negative number, I'd say sell. If it's positive, I'd say keep it as a rental.
@Christina Colon A couple thoughts for you as my wife and I recently just made the same decision on our newer construction personal residence in Le Claire which was worth about $365k. We chose to rent it.
1. Cash flow of $150-$200 is really tight depending on how conservative you were with your assumptions. What vacancy rate did you consider? Ours was listed for rent for about 3 months this spring (luckily 2.5 we were still living there). What is your assumption for monthly rent? Sure, your expenses will likely be low for new construction which is a huge plus. We are cashflowing about $750 per month on ours which leaves some room for these assumptions. Time of year is going to be a HUGE factor for renting, I wouldn’t want to be trying to rent something in this price point out between October and March.
2. What is your competition for rentals in this price point? For us, the developer is renting many properties in our subdivision BUT we by far have one of the best lots/locations so he was just bringing more attention for us. Lots of competition can drive your monthly rent down.
3. Depending on how much other new construction is available where you are and their pricing, if you chose to sell you may need to be priced below them, so you will want to be sure you can confidently get what you are looking for. Bettendorf has a ton of new construction in the price point you are talking about. My wife is a local real estate agent and her experience has been that her clients tend to go with new construction over existing every time in Bettendorf if price/location is equal.
I don’t want to scare you from choosing rental path, but just make sure you are being honest with yourself on your assumptions.
@Stuart Grazier thanks! I ran the numbers that you use. Based off my calculations I was cutting my self short with maintenance and cap ex. So it would put me approximately -$30 per month.