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Keeping current property as rental and buying new property — how to “swing” it
Posted on 5/14/23 at 5:58 am
Posted on 5/14/23 at 5:58 am
So 2 years ago we moved from NY back to PA into a new twin house. We hate the neighborhood and the location and we want to get back into a single family home. The real estate market is crazy here so it’s going to be expensive and we will probably pay near 500k for a house that has to be flipped or north of 650 for something move in ready.
The twin house has potential to make 600 to 1000 of positive rental cash flow per month.
I started a handyman side gig/trying to GC some work to pay off all debt besides current house note so I can afford a note on a potential 650k house and also to show the additional income to qualify for 2 mortgages since I can’t count the rent yet. So far, that’s going well and I’m pulling in a steady 2k a month.
The twin was bought at the low of the interest rates so it’s almost free money. I feel like I have to keep it vs using the equity to buy the new house.
So, do I keep the twin and rent it or do I just sell it to pull the equity and the side income money and dump into the new home.
No risk no reward I guess. If I keep the twin and rent it, where do I go from there? In a few years use the equity to buy more rentals? Use the equity and attempt to flip a home?
The twin house has potential to make 600 to 1000 of positive rental cash flow per month.
I started a handyman side gig/trying to GC some work to pay off all debt besides current house note so I can afford a note on a potential 650k house and also to show the additional income to qualify for 2 mortgages since I can’t count the rent yet. So far, that’s going well and I’m pulling in a steady 2k a month.
The twin was bought at the low of the interest rates so it’s almost free money. I feel like I have to keep it vs using the equity to buy the new house.
So, do I keep the twin and rent it or do I just sell it to pull the equity and the side income money and dump into the new home.
No risk no reward I guess. If I keep the twin and rent it, where do I go from there? In a few years use the equity to buy more rentals? Use the equity and attempt to flip a home?
This post was edited on 5/14/23 at 6:07 am
3
Posted on 5/14/23 at 7:52 am to dillpickleLSU
quote:
I feel like I have to keep it vs using the equity to buy the new house.
Do both. Open a HELOC on the twin house. Use that as down payment for the new house.
If your cash flow on the twin will really be $600-$1000 that should more than cover the HELOC interest payments.
Posted on 5/14/23 at 8:01 am to PhiTiger1764
Agreed. And if OP is already a handyman doing work like this, he’s probably well suited to be a landlord. Just make sure you can keep the rent house rented consistently but that is a very strong cash flow to not consider if you want to break into the business.
Posted on 5/14/23 at 8:11 am to dillpickleLSU
quote:
I started a handyman side gig/trying to GC some work to pay off all debt besides current house note so I can afford a note on a potential 650k house and also to show the additional income to qualify for 2 mortgages since I can’t count the rent yet. So far, that’s going well and I’m pulling in a steady 2k a month.
How long have you been doing this? Mortgage companies want to see a history of income and if you haven't been doing this side gig for 2 years or more they aren't likely to count the income. If they do use the income they're going to go off of tax returns so watch out how much of that income you write off at tax time.
This post was edited on 5/14/23 at 8:12 am
Posted on 5/14/23 at 11:17 am to VABuckeye
I’m about 6 months in. Yes I’m reporting a little of the income. I probably don’t need it because I qualified for our current mortgage without using my wife’s income. And yes, I am waiting the full 2 years before I think about buying another place. I started an LLC and have been using quickbooks and a dedicated checking account so it’s easy to track.
Interesting take on the heloc as the Down payment…I thought about it, but didn’t know how wise that would be considered…..guess wiser than not having 20 percent down on the new place without it
Interesting take on the heloc as the Down payment…I thought about it, but didn’t know how wise that would be considered…..guess wiser than not having 20 percent down on the new place without it
Posted on 5/14/23 at 11:21 am to dillpickleLSU
You can use the potential rent of the current home to offset that payment to qualify. As long as the current homes LTV is not higher than 75%
They will use 75% of that rental income and that doesnt need to be on the tax returns
They will use 75% of that rental income and that doesnt need to be on the tax returns
Posted on 5/14/23 at 11:33 am to PhiTiger1764
Are heloc rates typically better than mortgage rates?
Posted on 5/14/23 at 11:36 am to Seven11
I may have to throw a little money at it to get down past 75%…but if I’m using a heloc for down payment that puts me in a lot better situation than not, because of closing costs, moving costs, furniture and shite I’ll have to buy…I’m close…I finished the basement and got it reappraised but they lowballed me by about 20k
Posted on 5/14/23 at 11:44 am to PhiTiger1764
quote:
Do both. Open a HELOC on the twin house. Use that as down payment for the new house.
If your cash flow on the twin will really be $600-$1000 that should more than cover the HELOC interest payments.
Do this IF you can get that heloc knocked out. The first year intro rates aren't bad but will be significantly higher after a year.
Posted on 5/14/23 at 11:51 am to dillpickleLSU
quote:
Are heloc rates typically better than mortgage rates?
Not necessarily. I have an adjustable rate HELOC through my credit union and it’s currently at 6%. Just run the numbers though to see if it makes sense for you. Assuming a $100k HELOC balance and 6% rate, that’s $6k of interest per year. Your cash flow assumes $8400-$12000 per year.
You can also pay down more than the minimum with your cash flow which will reduce the balance and interest paid. Interest accrues daily.
The rate can go up and down with the market… the interest paid is also tax deductible.
All that to say I did exactly what I mentioned. Kept my home as a rental with sub 3% rate and used HELOC as down payment for current house.
This post was edited on 5/14/23 at 11:53 am
Posted on 5/15/23 at 5:55 am to MrJimBeam
My logistic issues with rental properties out of state was never small maintenance items. It’s super easy to find someone in the phone book to fix a shower door, replace curtain rods, and so on. The hard part was collecting keys and showing the apartment from faw away. It’s why I moved to a property management company.
There’s some things that can be annoying like when they charged me $85 to have their maintenance guy verify a microwave handle was indeed broken. Overall I use property management companies in two states and find it worthwhile.
There’s some things that can be annoying like when they charged me $85 to have their maintenance guy verify a microwave handle was indeed broken. Overall I use property management companies in two states and find it worthwhile.
Posted on 5/15/23 at 6:53 am to Motownsix
I won’t be out of state…but speaking of…do you rent by owner? How do you do background checks, credit, etc…where do you list?
Posted on 5/15/23 at 11:52 am to dillpickleLSU
We did rent by owner, but stopped doing that about 2 years ago. When we did rent by owner my wife (realtor/no pics) might have ran credit with mortgage brokers that she uses. She handled that part and I’m pretty sure that was the method. There’s plenty of background services out there that you can use with the applicants permission.
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