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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 10:33 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 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 5:26 pm to itsbigmikey
-Refinanced in 2021 to a 15 year conventional at 2.25% and now owe $140,000
--
With 12 years remaining, you are paying down the mortgage at about $1,000 a month. That's money in the bank.
$140,000/12 years= $11,667 Average annual paydown.
--
With 12 years remaining, you are paying down the mortgage at about $1,000 a month. That's money in the bank.
$140,000/12 years= $11,667 Average annual paydown.
This post was edited on 12/28/23 at 5:30 pm
Posted on 12/28/23 at 8:20 pm to itsbigmikey
1. Remain in the townhome and save for a down payment until interest rates come down. Unless you’re using a VA loan and have 800 credit, you’re not going to get less than 6%. You might be able to buy down to 4% in 2 years or so.
2. If your wife insists you move, here’s my advice as an owner of 4 rental properties (3 family homes and 1 condo):
a. Don’t use a property manager. They will swallow a huge chunk of your net pay. We use Zillow to advertise and screen rental applicants (each prospective tenant applies through Zillow for a nominal fee, and Zillow gives you their credit history and criminal background check).
b. Have a solid lease. My wife is a lawyer so she takes the lead on this, but we use a standard Virginia lease form and add anything else we want to enforce.
c. SCREEN TENANTS. This may be the most important thing. In addition to a high credit score and good rental history, you have to meet with them and ask yourself if you would want them living in your home. Based on my experience I avoid non-married partners, multiple large dogs (I will consider one small dog), and tenants with children that outnumber the rooms in the house.
2. If your wife insists you move, here’s my advice as an owner of 4 rental properties (3 family homes and 1 condo):
a. Don’t use a property manager. They will swallow a huge chunk of your net pay. We use Zillow to advertise and screen rental applicants (each prospective tenant applies through Zillow for a nominal fee, and Zillow gives you their credit history and criminal background check).
b. Have a solid lease. My wife is a lawyer so she takes the lead on this, but we use a standard Virginia lease form and add anything else we want to enforce.
c. SCREEN TENANTS. This may be the most important thing. In addition to a high credit score and good rental history, you have to meet with them and ask yourself if you would want them living in your home. Based on my experience I avoid non-married partners, multiple large dogs (I will consider one small dog), and tenants with children that outnumber the rooms in the house.
Posted on 12/28/23 at 9:43 pm to itsbigmikey
Sell the townhouse. Take the profits tax free. Refer to the 2 in 5 rule. You’ll be kicking yourself if you miss the deadline and have to cut Uncle Same a big check.
800K house in Nashville is great depending on the suburb, but you need a huge down payment to keep your sanity.
800K house in Nashville is great depending on the suburb, but you need a huge down payment to keep your sanity.
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