Just brought a house, what now?

Question

Hey biggerpockets community.

Me and my wife just brought a house, for a decent price not the best because it doesn't have equity in it ( A concept I just now learned). This is our first home so we don't know too much.

But I'm in the military so I got a VA loan and basically put no money down and the sellers covered closing cost. House cost 183,870 with 5.125 percent interest rate. Decent sized home as well. But my question is what should we do with this house let's say one or two years down the road should we sell it, our main idea was rent it out but IDK how good our area is for that we are located in South Jersey

For additional information just ask and I appreciate all the help thanks a million

Mike Bonadies · Answer

@Sheldon Nave - I am a landlord in South jersey and I am familiar with Blackwood (grew up in Gloucester Township). Blackwood is certainly a rent-able area, but the deals there can be a little tight. Depending on what area of Blackwood you are in a 3/1 recently rehabbed 1000sqft rancher will get you $1400 to $1450 in rent easy. If your house is larger you could get upwards of $1600 but I wouldn't bank on anything higher as once you breach $1600 in that area people start looking for actual houses unless you can offer a luxury rental. Based on the information you provided I am seeing the following rental numbers

Rent Roll: $1450
Mortgage: -$988
Taxes: -$416 (typical taxes are around $5k a year - but could be higher or lower depending on the area)
Insurance: -$100
Water/Sewer: -$33 (the norm in Camden county is that the owner pays water sewer, but you could possibly have the tenant pay)
Licences: -$15

Before repairs, vac, property management, and cap ex you are looking at a cashflow of -$102. Which is approx. -$1,200 a year.

Now that sounds bad but if your alternative is selling the property in 1 to 2 years you could be looking at a loss of $10k to 12k for RE agent fees and other expenses. That's if you sell it for exactly what you bought it for.

So if I was in your situation I would look at keeping it as a rental as the mortgage will go down over time and you'll eventually go cashflow positive + you have an asset that is being paid for. Neither situation is super rosy but taking a -1,200k hit each year which will eventually turn into an asset might be better than taking a 10k hit up front for no gain.

-Mike

Thomas S. · Answer

You need to analyse your rental market. The vast majority of personal SFHs make terrible income investment properties.

Your start point is to determine market rents for a similar home. Based on the present value your market rent needs to be $1800 per month minimum to bother keeping it as a rental. You need to budget 50% of that rent to cover expenses long term plus your mortgage payments. If you mortgage payment is more than $900/month the rent needs to be higher than $1800 to compensate.

Sheldon Nave · Answer

@Mike Bonadies Great stuff. I appreciate your insightful answer. I was thinking maybe it would be in the 1600 range for rent it's a 3 bedroom 2,491 sqft including an attic and fenced yard. Our mortgage is around what you said but with insurance and taxes were paying about 1650 total monthly payment.

My next concern is of course knowing every situation is different but... With me being being active duty military I could be relocated on a moments notice. What's the average time a house remains in the rental market in the blackwood area? Would you have a rough estimate by chance?

Dennis M. · Answer

As Thomas said ,if you can’t for sure get  atleast 1,800 in rent then don’t waste your time. If you can only get 1400 in rent you will go negative in cashflow each month and the house will be a burden on you

Mike Bonadies · Answer

@Sheldon Nave - 3bd at 2,500 sqft should be able to fetch $1600 and honestly I'd shoot a bit higher because that is a very large house for that area (in terms of rentals). The vacancy rate is a bit tricky at the high end of the market. For your standard rental I'd say you should be able to fill it within 2 weeks between the months of April to September (longer during the winter months). For a higher end rental you are probably looking at 4 weeks during the spring and summer months.That said something else came to my mind after I wrote my original post. Since you probably need this to be as hands off as possible and you don't have a spread for a property manager, you could try to lease-option in. Lease-options are still very popular in South Jersey. With a lease-option you don't have to handle any repairs and hopefully they buy the property off you in 3 to 5 years. With the option comes low expenses on selling the property including no RE agent fees. It will capture the best of both worlds for your situation.

Theresa Harris · Answer

Equity comes with time.  If you are buying a house, you should have the intent to hold on to it for a few years unless you are fixing it up to flip it.  When you sell a house, there are a lot of costs associated with it.  You have realtor fees, lawyer fees, etc.  If you buy a house for $100K and sell it the following year for $103K (assuming the price of the house goes up which it may or may not do), you might get $95K in your pocket.  At the start of a mortgage, most of your money goes to paying interest and not the principle.

If you are only planning on living in a place for a year or two, more often than not you are financially better off renting.

Just brought a house, what now?

Most Popular Reply