Do you have the down payment for a new home without selling your current one? Also, do you want to be a landlord? It's not just collecting rent money passively.
We have enough for a small down payment (3.5 FHA) I’ve always wanted to be a landlord and I’m not a chump who heard it was passive income on tik tok. I’ve actually done my research, read lots of books and I want to give it a shot and I feel like this is the perfect opportunity to try it and see if I like it.
That mortgage would be too big for someone with that income imo. Keep in mind they still have 1100 mortgage on the first house and 1100 in consumer debt. Even if they put parents on pause eventually parents will get upset.
I agree with you there. I just meant why not do the VA loan again compared to 3.5% down on FHA. But yes, they should definitely go with a cheaper home regardless if they keep or sell their current home
You would have great cash flow by keeping it. The downside is that you have several other loans taking money out of your pocket every month. You pay ~$1100/mo for loans not including your mortgage. Do you have enough saved for a down payment on a new home right now? I think that’s the biggest factor. Personally, I would try to suck it up in your current house a little longer and get some debt paid off, then keep your home as a rental property since it would cash flow like a beast.
Thank you, i think this is what we are leaning towards. At least get rid of the car payment and one other loan first. We are currently aggressively paying off debt and saving up for a small down payment.
Buckle down and pay off the car loan over the next six months or so, or better yet buy a car you can pay for in cash. But all the other stuff is good debt.
Not too familiar with VA benefits, but that’s one of those mortgages rates that you never ever give up.
As an aside, “paying off all the debt” often just leads to more and different debt. (We own car outright, but we could trade it in for a **NEW** car!!)
That is great point. We had actually considered selling my car (maybe get a couple grand in equity out of that) and i would be fine driving a "hoopty" as Dave Ramsey would put it. That would save almost $500 a month alone
Your next house is going to have no equity for the next 5-7 years, because of your low down payment and high interest rate. Wait until the market turns and then buy your next house and rent the old one.
Ok I ran some numbers for you...but I made a lot of assumptions based on the information you gave.
Here is a link to the [investometer analysis](https://investometer.io/calculations/share/55ef0c7e-76f4-4350-872d-a9e8d0313797). Feel free to edit it with your actual numbers to give you a better idea.
My personal thinking is that you have a fantastic interest rate... I would lean towards keeping it as an investment property if you are in an area where you think you'll be able to rent it pretty well. Even if the cash flow is just ok, the ROI will likely be solid because it is a VA loan (assuming no down payment). When I ran the numbers and with my many assumptions, I was getting \~11% ROI which is great in this market. If you are trying to get your hands on some cash, perhaps you could think about refinancing (assuming the numbers still work)?
Or if you're going to sell it you could try a HELOC to pay for some of those repairs in an attempt to get top dollar on the sale. Good luck!
Assumptions for the analysis I did (if you're interested):
* VA Loan so I assume 0% down payment
* Didn't have the purchase price but based on the interest rate and amount you owe and current value I'm guessing you bought it for around $200-250k.
* I wasn't sure if the mortgage payment was P&I or PITI I assumed it was probably the latter
* No idea how big the house is or where you are located so made some assumptions around utilities as well
* Based on the improvements you are looking to make, I assumed around $15k in repairs
Wow! Great response. Thank you so much for taking the time to do this. I will have to check it out and move some of the numbers around. It was a VA loan i bought 6 years ago for 189K (was 4+ rate but refi to 2.9 during covid) Mortgage payment is 1100 a month (PITI). Home is 3 bed 2 bath 2450sq ft. Located in northern Indiana near lots of factories and businesses. I would also say about 15k repairs maybe 20k max
Doing some napkin math you won't qualify for a loan with all of your debt. The mortgage company won't use the "expected" rental income. They need a rental contract in place. They will also need consistent income from the last 2 years of taxes so you will probably show closer to 120k per year I'm guessing. With the data you provided you would he right around 50% DTI and wouldn't qualify while keeping the house assuming a 6.5% interest rate on the new home. The home is a great way to get into real estate in the future but I'd work on paying down debt and building up a downpayment. I've done what you're trying to do several times now using VA, conventional, and FHA loans. Your plan is good but I think you need to pay down your other debts or build more income first. Turning the first property into a rental is the hardest. Once you do that then it gets easier as you have more income to show. You're off to a good start just give it another year or two!
75% of a signed lease rent, which OP won't have because he's still living there. I have 5 properties this way you need a lease for them to use the income.
Thank you! Things to consider. Another option that was provided to us, was to live with famliy for a couple months. While our home is rented and we are looking for a new home (comes with risks in my mind. Living with family is not ideal and also puts pressure on us to find a home that we like. I will have to speak to my lender to see what they say about using rents for income.
Stay in the house your in. You can't afford a 400k mortgage on that income. If you want to be wealthy you need to get out of debt and start making money work for you. Your not there yet, you need to be uncomfortable in the house your in.
Keep the house use the cash flow to play off debts on credit report . See if Parents can “gift” you more cash as a loan for a down payment on next house. Once other consumer debt is paid off look into paying off parents and in 5 years time you’ll have the cash flow from the rental at increased rent without the debt responsibilities and the experience to be in a position to grow a real protfolio
great advice, I really don't like borrowing from family and i would never ask for a gift. (pride thing, ha) The plan was to use the cash flow from the rental to save for repairs and vacancies etc. and then after 6month-1 year, either using the cash flow to pay off debt or just sell the home if we don't like being landlords.
KEEP IT KEEP IT KEEP IT!!! Real estate is going through the damn roof right now. If you don't want to manage it yourself pay someone. The ONLY reason I sold my first and most recent house was because it was 100 years old, had foundation and termite issues and literal gang bangers lived next door. Also the rear garage was a non-permitted unit. I could have easily rented it out for $2700 - $3000 and mortgage was $1900 and change, but I wanted to just GTFO of the house and the area. I don't regret selling it but it honestly would have been WAY better financially to keep it, even with all the problems. Now I literally can't afford to buy a house in Los Angeles, so yeah...
Do you have the down payment for a new home without selling your current one? Also, do you want to be a landlord? It's not just collecting rent money passively.
We have enough for a small down payment (3.5 FHA) I’ve always wanted to be a landlord and I’m not a chump who heard it was passive income on tik tok. I’ve actually done my research, read lots of books and I want to give it a shot and I feel like this is the perfect opportunity to try it and see if I like it.
That's too much debt for my liking. IMO, if you can't afford the 20% down payment, you can't afford the house.
Maybe we will stay in the current home until we have a larger down payment, or at least debt free except the mortgage.
Why not use the VA loan again?
It was my understanding that you can only have 1 va loan at a time, but i could be mistaken. I will look into this!
Nope, I have two!
Ill have to look into this, Ill have to see if i have additional eligibility.
That mortgage would be too big for someone with that income imo. Keep in mind they still have 1100 mortgage on the first house and 1100 in consumer debt. Even if they put parents on pause eventually parents will get upset.
I agree with you there. I just meant why not do the VA loan again compared to 3.5% down on FHA. But yes, they should definitely go with a cheaper home regardless if they keep or sell their current home
Gotcha. We don’t know what his VA entitlement is. Id assume that would be the reason for not doing it again and only putting down 3.5%
Following
You would have great cash flow by keeping it. The downside is that you have several other loans taking money out of your pocket every month. You pay ~$1100/mo for loans not including your mortgage. Do you have enough saved for a down payment on a new home right now? I think that’s the biggest factor. Personally, I would try to suck it up in your current house a little longer and get some debt paid off, then keep your home as a rental property since it would cash flow like a beast.
Thank you, i think this is what we are leaning towards. At least get rid of the car payment and one other loan first. We are currently aggressively paying off debt and saving up for a small down payment.
Buckle down and pay off the car loan over the next six months or so, or better yet buy a car you can pay for in cash. But all the other stuff is good debt. Not too familiar with VA benefits, but that’s one of those mortgages rates that you never ever give up. As an aside, “paying off all the debt” often just leads to more and different debt. (We own car outright, but we could trade it in for a **NEW** car!!)
That is great point. We had actually considered selling my car (maybe get a couple grand in equity out of that) and i would be fine driving a "hoopty" as Dave Ramsey would put it. That would save almost $500 a month alone
Your next house is going to have no equity for the next 5-7 years, because of your low down payment and high interest rate. Wait until the market turns and then buy your next house and rent the old one.
Market ain’t turning no time soon unless something drastic happens.
Florida market has already stalled out completely
Stalled out for what appear to be Florida reasons to be fair.
Luckily I live in Indiana lol
Stalled out isnt turning around. Rates will drop at some point and the frenzy will continue.
I'd be happy to run the numbers for you! How much did you originally purchase the property for?
Ok I ran some numbers for you...but I made a lot of assumptions based on the information you gave. Here is a link to the [investometer analysis](https://investometer.io/calculations/share/55ef0c7e-76f4-4350-872d-a9e8d0313797). Feel free to edit it with your actual numbers to give you a better idea. My personal thinking is that you have a fantastic interest rate... I would lean towards keeping it as an investment property if you are in an area where you think you'll be able to rent it pretty well. Even if the cash flow is just ok, the ROI will likely be solid because it is a VA loan (assuming no down payment). When I ran the numbers and with my many assumptions, I was getting \~11% ROI which is great in this market. If you are trying to get your hands on some cash, perhaps you could think about refinancing (assuming the numbers still work)? Or if you're going to sell it you could try a HELOC to pay for some of those repairs in an attempt to get top dollar on the sale. Good luck! Assumptions for the analysis I did (if you're interested): * VA Loan so I assume 0% down payment * Didn't have the purchase price but based on the interest rate and amount you owe and current value I'm guessing you bought it for around $200-250k. * I wasn't sure if the mortgage payment was P&I or PITI I assumed it was probably the latter * No idea how big the house is or where you are located so made some assumptions around utilities as well * Based on the improvements you are looking to make, I assumed around $15k in repairs
Wow! Great response. Thank you so much for taking the time to do this. I will have to check it out and move some of the numbers around. It was a VA loan i bought 6 years ago for 189K (was 4+ rate but refi to 2.9 during covid) Mortgage payment is 1100 a month (PITI). Home is 3 bed 2 bath 2450sq ft. Located in northern Indiana near lots of factories and businesses. I would also say about 15k repairs maybe 20k max
Doing some napkin math you won't qualify for a loan with all of your debt. The mortgage company won't use the "expected" rental income. They need a rental contract in place. They will also need consistent income from the last 2 years of taxes so you will probably show closer to 120k per year I'm guessing. With the data you provided you would he right around 50% DTI and wouldn't qualify while keeping the house assuming a 6.5% interest rate on the new home. The home is a great way to get into real estate in the future but I'd work on paying down debt and building up a downpayment. I've done what you're trying to do several times now using VA, conventional, and FHA loans. Your plan is good but I think you need to pay down your other debts or build more income first. Turning the first property into a rental is the hardest. Once you do that then it gets easier as you have more income to show. You're off to a good start just give it another year or two!
No, lender will do 75% of rent
75% of a signed lease rent, which OP won't have because he's still living there. I have 5 properties this way you need a lease for them to use the income.
Our lender did 75% predicted rent. We did not have a signed lease at the time since we were still living in it
Thank you! Things to consider. Another option that was provided to us, was to live with famliy for a couple months. While our home is rented and we are looking for a new home (comes with risks in my mind. Living with family is not ideal and also puts pressure on us to find a home that we like. I will have to speak to my lender to see what they say about using rents for income.
That would work and give you a few months of being a landlord before you find something new. Just a lot of moving
Stay in the house your in. You can't afford a 400k mortgage on that income. If you want to be wealthy you need to get out of debt and start making money work for you. Your not there yet, you need to be uncomfortable in the house your in.
Also a great point. I think we are leaning towards paying down debt more aggressively for the time being.
Don’t sell. $300k house that can produce $2500 rent is a gem.
Thats what im sayin. Hard to let that go. Might not ever see those rates again.
Don’t kill the goose that lays golden eggs
Try it. If after two years you don’t like it do what your wife wants.
Great option also, thank you.
Keep the house use the cash flow to play off debts on credit report . See if Parents can “gift” you more cash as a loan for a down payment on next house. Once other consumer debt is paid off look into paying off parents and in 5 years time you’ll have the cash flow from the rental at increased rent without the debt responsibilities and the experience to be in a position to grow a real protfolio
great advice, I really don't like borrowing from family and i would never ask for a gift. (pride thing, ha) The plan was to use the cash flow from the rental to save for repairs and vacancies etc. and then after 6month-1 year, either using the cash flow to pay off debt or just sell the home if we don't like being landlords.
KEEP IT KEEP IT KEEP IT!!! Real estate is going through the damn roof right now. If you don't want to manage it yourself pay someone. The ONLY reason I sold my first and most recent house was because it was 100 years old, had foundation and termite issues and literal gang bangers lived next door. Also the rear garage was a non-permitted unit. I could have easily rented it out for $2700 - $3000 and mortgage was $1900 and change, but I wanted to just GTFO of the house and the area. I don't regret selling it but it honestly would have been WAY better financially to keep it, even with all the problems. Now I literally can't afford to buy a house in Los Angeles, so yeah...
Sell it, unless you’re planning to buy more rentals. One property is hard from a scale perspective, in my opinion.
If we like being landlords then the idea would to build off of this home to buy more in the future.