Use our current home as our first rental property?

8 Replies

Hi Ya'll! I am brand new to the BP forums and their website. I will try to keep this short but we live in our current home now in SC. My fiancee bought the home in 2010 and there is good equity in the home now. He/we owes about 160-170k on the home loan currently and based on it is worth at 260k. Here is the link:

He refinanced his mortgage earlier this year and now has a 2.75% interest rate on a 30 year loan. We did not do a cash out refinance as we want to keep the payment low. The mortgage payment is now $800/month and the average rent in our neighborhood is $1,600 minimum but I believe we could ask for more and get it because our neighborhood is a hot spot! My question is, what BP calculator should I use? I was in the process of using the rental income calculator but that is based off of buying the property, closing costs, and what not but we already own the home so I am wondering do I need to use one of the calculators to run my numbers? Or is this something I need to do on paper and pen type of thing? The cash flow is definitely there just because of the wide margin gap between the rent charge and the low mortgage but I want to have accurate numbers. Any tips and advice is greatly appreciated!!! I believe that we can make this work for our 1st rental property but I would like some guidance/help just to be 100% sure that the numbers will work. Has anyone else done this before? THANK YOU ALL SO MUCH!! 

**side note: we are planning on putting in a new a/c unit this year or at least before we decide to rent it out. The home is older (2010) but we had the roof looked at by a roofing company and he said it is in good shape and should go another 5 years or longer, etc. depending on the weather. And we are slowing updating certain aspects of the house too. 

Hi Elizabeth,

Sounds like you guys have a pretty decent property! I run my numbers very quick and dirty. It looks something like this:

Gross rent x 75% - expenses = cash flow 

cash flow x 12 / total cash to close = cash on cash return

Most banks I know of use the 75% when calculating rental income as well. Figure 10% management, 5% cap ex, 5% maintenance, 5% vacancy.

Hi @Thomas Geary ! Thank you for your response it is much appreciated  :)  

So, where does the 75% number come from? And, since the home is our home, we have no closing costs or rehab costs to account for so, if it were your current home would you still run the numbers as you previously mentioned in your above comment? Or would you run them differently? I hope I’m making sense? And sorry for all the questions! 

Congratulations. It sounds like you have managed the asset wisely by getting a low rate and not having to tap into equity. And in a hot rental area? Absolutely you should hold this as a rental.

Thank you all very much for taking the time to reply to my question/post! We ran the numbers and our current home will work perfectly as our 1st rental property! We plan on executing this plan within the next year and continue to learn and improve on analyzing more deals during this time frame. If the opportunity and the numbers make sense, who knows, we may find a Rental property this year! After taking out the 25% expenseses, our cash flow will be $400 :)

Hi @Elizabeth N Trahan and welcome to BP! Happy to have you here.

The property sounds in solid shape and in a good position to turn into a rental, especially if you can pocket $400/month from it. Best of luck to you turning it into a rental and acquiring future investments!

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