Profile picture for collinpvp

Should I rent my current home, net 300 dollars a month, and buy a second or sell my current and use

Current Mortgage Payment is $700 and have a friend who wants to rent for two years at 1300 p/m.  After HOA, taxes, maintenance etc should net around 300 p/m.
Would have to pull majority of my stock investments to come up with 10% down on second home.  Mortgage would be quite a bit more expensive.

OR
Current home balance is $115,000.00  comps from my neighborhood are selling around 250-260.  Lets say I sell for 240,000 minus 15,000.00 (Realtor commissions)  it leaves me with 110,000 to put on a much larger new home build in up and coming neighborhood.  Mortgage would be cheaper than option A, and Id get to keep my stock investments.  However, Id only have 1 home building equity.   
ANY and ALL advise would be much appreciated. 
 
  • February 27 2014 - Peoria
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Answers (7)

I don't know about the real estate market in Peoria but given the facts you stated I would say sell.  Renting your home sounds like a good idea to build equity BUT what happens if your friend stops paying and you are on the hook not only to evict but to pay 2 mortgages?  That could put you in a tight spot plus when it comes to doing repairs the extra $300 per month will be used up quickly.  For me renting is a pain.   I guess I have been burned too many times from my own rental properties. 
   A benefit of course comes with tax write offs etc..  It is best to speak with a finance consultant.   I say sell and invest.
  • April 01 2014
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Profile picture for Susan Job
The rent sounds low for that value of a home.  Having said that another option may be to refinance your current home at a lower rate and pull out enough equity to put 20% down on your new home thereby
avoiding the cost of Mortgage Insurance and getting lower interest rates.  The rental income will be paying down the debt on your current home and you will also get the benefits of the depreciation on your taxes. You will also own two properties that will appreciate over time.   If the value of your current home has gone up a lot since purchasing it you will be converting the gain from a personal residence which has no capital gain to an investment property which could have capital gains taxes when you sell it.  I would recommend reviewing that situation with a CPA. 
  • April 01 2014
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You should certainly speak with an accountant so that you under potential tax benefits and/or drawbacks. Additionally, you will want to speak with an attorney about the steps that you will need to take to turn your current home into a rental. Have you discussed with your stockbroker the tax liability of selling your investments or early withdrawal penalties? Lastly, the house that you live in shouldn't be considered an investment for wealth building purposes. You will always have to live somewhere!
  • February 27 2014
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Profile picture for user6064703
Sell it.  If you have $110,000 in equity and you are making $3600 per year in rental profit ($300x12), your return is only 3.3%.  That's not great considering that you are still on the hook for maintenance.  Furthermore, $1300/month in rent on a $240,000 house is terrible.  Absolutely terrible.

I would sell the property and invest the difference elsewhere after you've purchased your new houise.
  • February 27 2014
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Profile picture for collinpvp
I have lost quite a bit of money in stocks over the years and have yet to see much return.  Its why Im not 100 percent against pulling it out to invest in a property.

Already spoke to a mortgage banker and got pre-approved for a second mortgage under the contingency that my original home will be rented out (which won't be an issue).  

In your opinion, is having two smaller/older homes in a developed area better than a larger new home in newer community?  I feel as though the larger home has a higher ceiling as far as its ability to build equity but I like the idea of having someone else paying off the mortgage on my home now.  Im torn.
  • February 27 2014
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The question you have to ask yourself is "Can I afford both payments if the rental were vacant for several months in a row?"  If so, you need to talk to a loan officer to see if you can qualify for both.  It appears that real estate values are on the rise again, so might be a good idea to have two properties appreciating.
  • February 27 2014
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How well are your stock investments doing?  It is a pretty safe bet that home values will continue to rise and having two homes appreciating is definitely better than one.

In most cases, you can write off the mortgage interest and other expenses related to the rental home.

If you haven't done so already, talk with loan officer to get pre-qualified to ensure your income can support two mortgage payments.  Unless you have a history of receiving rental income, you will not be able to use the rental income from converting your current home to a rental property.

Hope this helps,

Julio Zapata
Loan Officer
Academy Mortgage
  • February 27 2014
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