All Forum Posts by: George M.

Not sure I follow #2.  Are you assuming that the house is worth $0 the minute I begin to rent it out?  

What I'm trying to gauge is whether there's an option 3 (or 4?  or 5?) where we take some kind of hybrid approach:  Lease for a year or two (gaining valuable 1st time landlording experience, even if we maybe don't cash flow anything at all), and then sell the house and still reap the tax advantages - finally using those proceeds to buy other investment properties.  Sounds like the consensus here is that this is fairly risky as I'm 1) assuming that the property value doesn't drop substantially in the next 2 years and 2) hoping that the tenants don't trash the place to the point where I wouldn't be able to sell it.  Are there other risks here that I'm maybe overlooking?  

Thanks again for everyone's insight,
george

@Nathan Song  - and what's the interest vs. principle ratio?

Maybe I should clarify that the current financing on the property actually includes a 2nd mortgage with a spectacularly high interest rate?  That would be part of the reason why we would look at doing a refi (to consolidate the debt and bring down the interest).  Otherwise, I don't think we'd have any cashflow at all (might even be in the red) =)

In any case, the high rental is a concern I share as well... According to market analysis, there were 6 properties of similar size put up for lease over the last 6 months, 5 of which were actually leased at an average of $2300/mo.  ADOM was ~40 days so probably not an indication of a "strong" rental market (most homes in the neighborhood are indeed owner occupied), but maybe just enough of a demand to allow us to lease it out for a couple years before letting the property go.

The other issue is that we probably won't be able to move out of the current house until late Sept / early Oct, so might miss the "summer move-in" widow just slightly... (there go the vacancies!!)

-george

Thanks @Jean Bolger & @Toben B. ,

Yes - trying to keep the capital gains tax exemption in mind when planning the strategy... though I wasn't quite sure whether that completely goes away the minute I start leasing it out (and hence an investment from that point onward) or if I can still wait 2 years before putting it on the market and still qualifying for the exemption.  Sounds like it's probably the latter, but I'll "contact my qualified tax professional" to confirm :)

And yeah, this is a 1.5, but luckily no plumbing upstairs, so that might decrease our risk a bit.  And again, if we do end up leasing out the property, even for just a year or two, we'd want to make sure we thoroughly follow the Tenant Screening Guide to make sure we don't end up having lots of damage to the property (I've seen some pretty bad cases in the past, so want to steer clear of this!)

Thanks again,
george

Thanks @Raymond B. - rookie mistake :)

And btw - as @Cal C. alluded, this may not make sense for cashflow, but might make sense for appreciation.  I'm debating with some other real estate folks (that know this market better than I do) to see if it would make sense to hold on to the property (lease it out) for even just one more year to maximize appreciation before cashing out.  The neighborhood is almost fully built out, and the last constructions will be 1 acre+ homes that will be way north of the current price range.  Even if I assume zero appreciation, perhaps the refi closing costs could be offset by the equity gained by having someone lease out the property for a year.  

If anyone has any thought or comments on that, I'd be interested to hear them.

Thanks again,
george

Alrighty then - guess that settles it :)  Thanks @Cal C., @Joshua Springer, & @Jacob Forbis for the insight.

-george

Hi BP,

New to the forums here, tho I've listened to a couple podcasts and am anxious to get started. My wife and I currently live in a SFH that we bought in 2010 and are planning to move out soon to a different property. Question is whether to sell it now (and realize a good amount of appreciation in the gain) or to hold it and lease it out (and hopefully cash flow a little bit). Here are the specifics:

Financials

Originally bought our current home in 2010 for $290k and we currently owe about $240 on it.  Since then, we've been lucky to have a modest amount of appreciation and our realtor believe we can sell for about $340k.  To me, that sounds like we gross ~$100k and net maybe $70k when all is said and done.

If we lease it out instead, we would finance the house to a 30 year conventional to get the mortgage payments down to ~$1250/mo (of course, we'd have to chip in ~$4k to close the refi, but we have the budget for that at the moment). Factor in tax, insurance, HOA fees, and a small maintenance budget and our operating expenses come to ~$925/mo. Then, based on market analysis that we've done with our realtor, we think we can rent out the property for $2400/mo, so we'd hope to see about cash flow of $200/mo from the start. (They always say you need to make money when going in, right?) The question here is whether that $200/mo is enough to justify leasing it out.

Market

Our current home (SFH) is in what I'd term a "desirable" suburban neighborhood. There's a top-rated elementary school within walking distance, with the junior high and high school also rated as excellent as well. As you can imagine, though, this makes most of the neighborhood is owner occupied, though there are a few rental properties sprinkled throughout (as of this writing, there are 4 other properties that are up for lease). The concern here is that it would be easier to sell rather than to rent.

The SFH is a 3/2, 1.5 story (flex space upstairs that could be used as an additional 4th bedroom?). In my mind, that would be ideal for a renter, but I guess that's just an opinion.

Personal Goals

As a first step into real estate investing, we are hoping to find a property that cash flows from the start to add in additional monthly income.  We aren't afraid to self-manage the property to start and the we would be living less than 15 minutes away, so dropping by to help out tenants wouldn't be a problem.  We currently have a good amount of equity in the property today, and the thought is that we would leverage this later into a 2nd investment property - but part of me is wondering whether it would be better to cash out of this one now (realizing the appreciation) and use those funds to finance a different property that might have better cash flow.

Any and all advice is welcome - thanks in advance!

-george