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Message
Buying new home - Renting current townhouse
Posted on 12/28/23 at 8:30 am
Posted on 12/28/23 at 8:30 am
Got married this year and am preparing for the family life with my wife (no pics). As the thread states, our plan is to buy a house and rent out my townhome that I purchased in 2017 (I'm 31 she's 29). Some notes on the townhome:
-Built in the 70's. 3 bed 3.5 bath 2,900 sq ft. It's a little dated and probably needs a facelift (paint, lighting, etc.) but overall is a relatively nice place in a great area in the suburbs of Nashville. Also has a community pool.
-Original mortgage was 30y conventional $178,000 at 4.25%.
-Refinanced in 2021 to a 15 year conventional at 2.25% and now owe $140,000
-Monthly Payment is $1,300 + $360 HOA (Taxes $2,200/year)
-Conservatively the property is now worth $360,000 (Probably closer to $400,000). There's a newly renovated unit that has a very similar footprint to mine and they're asking $580,000 for it (don't see how they'll get that).
I know I could make a pretty penny on selling but I'm trapped in the proverbial golden handcuffs and realize this could be a great asset to keep. We both do pretty well and have a net income of ~$200k a year before taxes. We've got ~$150k in cash and I'm liquid another ~$100k in my personal investing account. Obviously we have quite a bit of equity built up as well. Unless we absolutely kill it over the coming years, our next house will be the one we plan on being in for a long time. I would say our price range (before speaking with a lender) would be around $650k-$750K.
If I follow through with it I will probably hire a property manager because my job is pretty demanding. Based on my limited research I think I could easily get $2,500-$3,000/month in rent.
I welcome any criticism/insight/discussion. I come from a pretty financially unstable childhood and have constant anxiety about getting in over my head and losing control of my own finances. On the other side of the coin, I also am wanting to do everything that I can to get ahead financially-speaking. My wife thinks I worry too much and she is probably correct but I want to be as prepared as possible and cover my blind spots so I can make sure our future children don't have the insecurity that I felt growing up. Thanks!
-Built in the 70's. 3 bed 3.5 bath 2,900 sq ft. It's a little dated and probably needs a facelift (paint, lighting, etc.) but overall is a relatively nice place in a great area in the suburbs of Nashville. Also has a community pool.
-Original mortgage was 30y conventional $178,000 at 4.25%.
-Refinanced in 2021 to a 15 year conventional at 2.25% and now owe $140,000
-Monthly Payment is $1,300 + $360 HOA (Taxes $2,200/year)
-Conservatively the property is now worth $360,000 (Probably closer to $400,000). There's a newly renovated unit that has a very similar footprint to mine and they're asking $580,000 for it (don't see how they'll get that).
I know I could make a pretty penny on selling but I'm trapped in the proverbial golden handcuffs and realize this could be a great asset to keep. We both do pretty well and have a net income of ~$200k a year before taxes. We've got ~$150k in cash and I'm liquid another ~$100k in my personal investing account. Obviously we have quite a bit of equity built up as well. Unless we absolutely kill it over the coming years, our next house will be the one we plan on being in for a long time. I would say our price range (before speaking with a lender) would be around $650k-$750K.
If I follow through with it I will probably hire a property manager because my job is pretty demanding. Based on my limited research I think I could easily get $2,500-$3,000/month in rent.
I welcome any criticism/insight/discussion. I come from a pretty financially unstable childhood and have constant anxiety about getting in over my head and losing control of my own finances. On the other side of the coin, I also am wanting to do everything that I can to get ahead financially-speaking. My wife thinks I worry too much and she is probably correct but I want to be as prepared as possible and cover my blind spots so I can make sure our future children don't have the insecurity that I felt growing up. Thanks!
10
Posted on 12/28/23 at 8:37 am to itsbigmikey
Don't over-mortgage yourself on the new primary home purchase. Keep your townhome as long as you can for passive income and let someone else increase your equity in it over the years, and therefore net worth. The goal is to try and never put yourself in a position where you need to sell your townhome. You want at least a 12% ROI on your townhome when it turns into a rental property. Keep the water/sewage bill in your name, it's lienable to the property if it goes unpaid. Have your new tenant(s) setup everything else in their name (internet, tv, utilities, etc). Avoid a property manager, especially for 1 property not far from your primary residence. They charge an arm and a leg. So much that you may not even break even. Use TurboTenant
ETA: My wife and I both owned our own properties when we met. I eventually moved in with her in her condo and started renting my small house. Once we got married, we then bought a new primary house that we will raise our toddler son in. As soon as we bought the new house Spring '22, we started renting her condo as well. We now have a primary house we love and 2 rental properties with great long term tenants in both. We refinanced both properties to super low rates during COVID and cut our mortgages on those properties down quite a bit. Our monthly profit from the 2 rentals almost cash flows our primary house mortgage payment. I'd love to buy a 3rd investment/rental property in the next 5-10 years to grow our potfolio. When you start renting your townhome out, start an LLC for protection.
Property ownership = wealth. All of our properties will go to our son when we pass, through the trust we already put in place for him. I'll die happy knowing everything we work hard for will be passed down to him so he will be financially secure once we're gone.
ETA: My wife and I both owned our own properties when we met. I eventually moved in with her in her condo and started renting my small house. Once we got married, we then bought a new primary house that we will raise our toddler son in. As soon as we bought the new house Spring '22, we started renting her condo as well. We now have a primary house we love and 2 rental properties with great long term tenants in both. We refinanced both properties to super low rates during COVID and cut our mortgages on those properties down quite a bit. Our monthly profit from the 2 rentals almost cash flows our primary house mortgage payment. I'd love to buy a 3rd investment/rental property in the next 5-10 years to grow our potfolio. When you start renting your townhome out, start an LLC for protection.
Property ownership = wealth. All of our properties will go to our son when we pass, through the trust we already put in place for him. I'll die happy knowing everything we work hard for will be passed down to him so he will be financially secure once we're gone.
This post was edited on 12/28/23 at 9:04 am
Posted on 12/28/23 at 9:30 am to itsbigmikey
Remember Nashville favorite son in regard to personal finances, Dave Ramsey...
Get Rich Slow
If you've researched rent expectations and a realistic number covers your mortgage and taxes on the rental, might be a good idea. Then again, who are you renting to??? Decent guy or an axe murderer?
I had a low income rental property and I was burned with both renters over time. Best day of the whole thing was the day I sold that thing and put that check into the bank and began earning interest and dividends instead of rent money.
Are people paying $2500 a month inherently better people than low income renters? I don't know.
Get Rich Slow
If you've researched rent expectations and a realistic number covers your mortgage and taxes on the rental, might be a good idea. Then again, who are you renting to??? Decent guy or an axe murderer?
I had a low income rental property and I was burned with both renters over time. Best day of the whole thing was the day I sold that thing and put that check into the bank and began earning interest and dividends instead of rent money.
Are people paying $2500 a month inherently better people than low income renters? I don't know.
Posted on 12/28/23 at 9:32 am to itsbigmikey
-Monthly Payment is $1,300 + $360 HOA (Taxes $2,200/year)
-Conservatively the property is now worth $360,000
Rent from $2500-3000.
--
Does the 1300 monthly payment include taxes or is that additional? 1300+360+200= $1860
You will have vacancies, fixups along the way, as well as property management fees. But you know that.
Some on here will comment that you are not making enough in cash flow to offset the equity. But on the other hand, you have a very short term mortgage (12 Years) and will likely have appreciation to boot.
I did very well putting some rentals on 10 or 15 year mortgages. They did not cash flow much at the time, but paid off quick and cash flow very well now.
-Conservatively the property is now worth $360,000
Rent from $2500-3000.
--
Does the 1300 monthly payment include taxes or is that additional? 1300+360+200= $1860
You will have vacancies, fixups along the way, as well as property management fees. But you know that.
Some on here will comment that you are not making enough in cash flow to offset the equity. But on the other hand, you have a very short term mortgage (12 Years) and will likely have appreciation to boot.
I did very well putting some rentals on 10 or 15 year mortgages. They did not cash flow much at the time, but paid off quick and cash flow very well now.
This post was edited on 12/28/23 at 9:34 am
Posted on 12/28/23 at 9:35 am to itsbigmikey
quote:
I want to be as prepared as possible and cover my blind spots so I can make sure our future children don't have the insecurity that I felt growing up. Thanks!
also read this book:
A great small section of the book described a guy who grew up poor as dirt, was motived because of that, and wanted a good life for what would be his children someday.
Then he kicked arse and became rich as hell.
Then...his kids were spoiled brats who had zero interest in giving a shite about the value of money or hard work, and they were awful people.
Posted on 12/28/23 at 10:02 am to itsbigmikey
Why do you want to move out of the townhouse at this point? That is a huge amount of space for a married couple, I wouldn’t even consider moving out until I had two kids.
Posted on 12/28/23 at 10:27 am to TheWalrus
Why not sell it and put the equity as a down payment on the new home? Financing a lot less at 6-7% interest just so much appealing to me.
Posted on 12/28/23 at 10:33 am to itsbigmikey
First and foremost OP, you need to understand the 2 in 5 year rule. If you sell your townhouse now there is NO INCOME TAX owed up to $250k for single and $500k for married of INCOME from the home.
If you wait 2 years to do this, you will owe sales tax on your profit and its a cliff at the 2 year mark.
I don't think your idea of renting is a terrible idea with those numbers, but I do think its likely a terrible idea considering the amount of equity you have in the home as a personal residence.
If you wait 2 years to do this, you will owe sales tax on your profit and its a cliff at the 2 year mark.
I don't think your idea of renting is a terrible idea with those numbers, but I do think its likely a terrible idea considering the amount of equity you have in the home as a personal residence.
This post was edited on 12/28/23 at 10:34 am
Posted on 12/28/23 at 2:04 pm to tigerbacon
quote:
Why not sell it and put the equity as a down payment on the new home? Financing a lot less at 6-7% interest just so much appealing to me.
Sounds like the OP already has a decent amount of cash on hand for a down payment on the new house.
This post was edited on 12/28/23 at 2:06 pm
Posted on 12/28/23 at 2:06 pm to ItzMe1972
quote:
Does the 1300 monthly payment include taxes or is that additional?
I botched this. It is included as I pay into an escrow account for insurance and taxes
Posted on 12/28/23 at 2:11 pm to ColoradoAg03
Good shite, ColoradoAg. Loved reading this post. Keep it up.
Posted on 12/28/23 at 2:17 pm to LSUShock
Right now he has 100kish in the bank and 350kish in equity. He wants to buy an 800kish house. He makes 200kish as a family. He shouldn’t have a mortgage above 550k. To have a reasonable mortgage for his income he needs the equity for a down payment
Posted on 12/28/23 at 2:18 pm to TheWalrus
quote:
Why do you want to move out of the townhouse at this point? That is a huge amount of space for a married couple, I wouldn’t even consider moving out until I had two kids.
Fair question. We would like a stand alone house and a yard for our dog and children is the short answer. Our situation is definitely fine as of now but my wife wants to "nest" if you will in something that we can decide on together before we have kids. I also am ready to not share walls with anyone and have my own property
Posted on 12/28/23 at 2:28 pm to itsbigmikey
Why an 800k house?
Posted on 12/28/23 at 2:56 pm to itsbigmikey
Making 200k and buying a 800k house. Seems aggresive but maybe I’m ultra conservative.
Posted on 12/28/23 at 3:04 pm to Sherman Klump
quote:
Making 200k and buying a 800k house. Seems aggresive but maybe I’m ultra conservative.
Sounds like they have enough cash to put at least 20% down, avoid PMI, and mortgage the rest. Not as aggressive as it seems, but also not conservative.
Posted on 12/28/23 at 3:34 pm to itsbigmikey
quote:
cover my blind spots so I can make sure our future children don't have the insecurity that I felt growing up.
Firstly, congratulations on managing money successfully at a young age. I failed to do this and it was a mistake
If avoiding risks is your priority then you should go the safe route with it. Carrying some debt may not trouble others, but this kind of thing could keep you up at night. That would make the 800k house very much not worth it.
Posted on 12/28/23 at 3:44 pm to ColoradoAg03
quote:
Sounds like they have enough cash to put at least 20% down, avoid PMI, and mortgage the rest. Not as aggressive as it seems, but also not conservative.
It feels pretty aggressive to me. His mortgage with property taxes and insurance will be around $4k if he got a 6%. That's 24% of their pre tax income. Is their income going to keep increasing? Will they send kids to daycare or will one parent stop working?
That doesn't feel comfortable to me.
Posted on 12/28/23 at 4:13 pm to Harry Rex Vonner
quote:
Are people paying $2500 a month inherently better people than low income renters? I don't know.
Inherently? No. A person’s character is not determined by the amount of money they make or how much rent they pay (or don’t pay). I’ve been in rental real estate for almost four decades and I learned that the hard way, early on.
In his case, if he goes with a skilled property manager, that’s the first step. I’ve dealt with good ones and bad ones over the years. Considering his equity position and monthly payment, as well as the couple’s age and financial position, I’d do exactly what he’s considering without hesitation. As long as his estimate of rental income is fairly accurate, even with a management fee, this one has
written all over it IMO.
Posted on 12/28/23 at 5:06 pm to itsbigmikey
I can’t help with money questions but I can say this .. I wanted one setup in a home when we had our first kid .. and then different when they were teens and even different now that they’re all gone.
My point being .. $800,000 house with babies and then you may decide that you want a totally different style floor plan.
My point being .. $800,000 house with babies and then you may decide that you want a totally different style floor plan.
This post was edited on 12/28/23 at 5:08 pm
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