Renting out my primary residence and buying a new primary
Member since 2023 · 20 posts · 6 votes
Back again but with a little more info. I want to get started in real. Estate investment, what's my current primary residence in Knoxville, TN. I've done the math roughly and honestly the cashflow is coming out much less than I'd hoped for by a long shot.
Based on similar homes here's where I'm at. $2,500-$2,700 in rent but have a $1,900 mortgage (including current property taxes) plus $100 for insurance, plus a 10% chance of no one renting and another 10% set aside for repairs.
After all that I'm in a range of breaking even or making $200 a month with this as a rental. My question is at what point is it not worth it to use this as a rental? Am I here already or have I made a mistake in my numbers assuming everything I layed out here is correct.
Michael,
This is a tough one. It all depends on your risk tolerances. If young and willing to take risk, renting is an option. Even if the market corrects a bit in 2024-2025, you'll probably be slightly ahead if you can get it rented at those dollars. If more on the conservative side, then I would say you need to take into consideration all your debts. A DTI (Debt-to-Income) ratio of 50% or lower, when including all expenses you pay/month, would be safe IMHO.
You're in a good market for rentals for a few years. Supply hasn't caught up to drive rents down like they will in larger cities. However, keep in mind, once they do you'll need to be prepared for the worst. So plan for the worst in a few years and hope for the best.
Good luck!
Michael,
This is a tough one. It all depends on your risk tolerances. If young and willing to take risk, renting is an option. Even if the market corrects a bit in 2024-2025, you'll probably be slightly ahead if you can get it rented at those dollars. If more on the conservative side, then I would say you need to take into consideration all your debts. A DTI (Debt-to-Income) ratio of 50% or lower, when including all expenses you pay/month, would be safe IMHO.
You're in a good market for rentals for a few years. Supply hasn't caught up to drive rents down like they will in larger cities. However, keep in mind, once they do you'll need to be prepared for the worst. So plan for the worst in a few years and hope for the best.
Good luck!
Hi Michael,
What is the assumption here in terms of the purchase price and downpayment? I would calculate the cash on cash return to see how well your money is working for you. With that being said, if you have high risk tolerance and are young, this seems like a good place to start. You can always find better deal but sitting on the sideline to find the "perfect" deal on your first one is a major reason people never get started.
This is a great question and the answer really depends on your scenario. I think we can both agree that a few hundred dollars a month in cash flow is not going to drastically change your financials, but holding onto this property for 5-10 years could. I personally, would keep the property and hold onto it as long as I can. With that said, there are a few scenario's in which that may not be the best choice for you.
If you have good amount of equity in the property, you may be better off selling and redeploying into a few additional properties. As far as your finances, if missed rent or vacancy would stretch you, it may not be in your best interest to hold onto it.
Weigh the pros and cons and make a decision from there. The only known factor is you cant capture appreciation if you no longer own it. :)
This is a great question and the answer really depends on your scenario. I think we can both agree that a few hundred dollars a month in cash flow is not going to drastically change your financials, but holding onto this property for 5-10 years could. I personally, would keep the property and hold onto it as long as I can. With that said, there are a few scenario's in which that may not be the best choice for you.
If you have good amount of equity in the property, you may be better off selling and redeploying into a few additional properties. As far as your finances, if missed rent or vacancy would stretch you, it may not be in your best interest to hold onto it.
Weigh the pros and cons and make a decision from there. The only known factor is you cant capture appreciation if you no longer own it. :)
Michael,
This is a tough one. It all depends on your risk tolerances. If young and willing to take risk, renting is an option. Even if the market corrects a bit in 2024-2025, you'll probably be slightly ahead if you can get it rented at those dollars. If more on the conservative side, then I would say you need to take into consideration all your debts. A DTI (Debt-to-Income) ratio of 50% or lower, when including all expenses you pay/month, would be safe IMHO.
You're in a good market for rentals for a few years. Supply hasn't caught up to drive rents down like they will in larger cities. However, keep in mind, once they do you'll need to be prepared for the worst. So plan for the worst in a few years and hope for the best.
Good luck!
Lower rates will lower rents over time. People will choose to buy, if they can (Supply is still around 1/2 of what it was at it's peak and people are moving in Knoxville area at an increasing rate).
I expect rates will start falling a lot more in 2025 if the Republicans take the Senate by 5 or more seats and the House by 12 or more. However, I also don't believe there will be a lot of equity building in the next 3-7 years due to lack of supply. Meaning, it will go up some, but not at the rate it has in the past 10 years. We don't have a lot of builders here in Knoxville.
Also, many investors have been lobbying for High-Density legislation. Therefore, multi-family will take some demand from SFR. Polls have shown younger people prefer less, even if it costs more.
As municipalities expand, then contract, then expand, and so on... equity will grow at similar rates respectively.
Lower rates will lower rents over time. People will choose to buy, if they can (Supply is still around 1/2 of what it was at it's peak and people are moving in Knoxville area at an increasing rate).
I expect rates will start falling a lot more in 2025 if the Republicans take the Senate by 5 or more seats and the House by 12 or more. However, I also don't believe there will be a lot of equity building in the next 3-7 years due to lack of supply. Meaning, it will go up some, but not at the rate it has in the past 10 years. We don't have a lot of builders here in Knoxville.
Also, many investors have been lobbying for High-Density legislation. Therefore, multi-family will take some demand from SFR. Polls have shown younger people prefer less, even if it costs more.
As municipalities expand, then contract, then expand, and so on... equity will grow at similar rates respectively.
So in a market with lower rates we will see a dip rental cost or least reach a plateau. With that in mind, by the time I'm able to get my current home rented (1 year from now) I could very well be in a negative cash flow position on the rental.
Again it's not a deal breaker for me that the property cash flows immediately but that's good information, that will help me keep a realistic outlook as I move forward. If I misinterpreted that let me know but if not I'll definitely take the info and let it add to my perspective.