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Rent your main residence or sell and buy a rental?

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This week’s question comes from Brandy through Instagram Ashley direct messages. Brandi asks: Our current home can give us about $ 260,000 in net proceeds in the event of a sale. With these funds we plan to purchase rent. But our house is in a good location with a good rating. Do we have to sell our main property to buy the property, or renovate and rent it out?

The sell against refi the argument comes back again! In this hot housing market there is nothing surprising in the fact that homeowners want this take advantage of their growing capital by selling their property. But it can lead to the loss of one property just to go out and find another. Although the answer to the sale against the refi is specific to the situation of each investor, there are several quick ways you can determine which is a good move for you.

If you want Ashley and Tony to answer a question about real estate, you can write to A group of real estate newbies on Facebook!! Or call us on the beginners query line (1-888-5-ROOKIE).

Ashley Kerr:
This is a real estate newbie, episode 182. My name is Ashley Kerr, and I’m here with my co-host Tony Robinson.

Tony Robinson:
And welcome to the Real Estate Rookie podcast. And when you join us for the first time, we are your podcast aimed at those investors who are at the beginning of their investment path. And so if you don’t have a deal, or maybe you just got a couple and you want to scale. This is a podcast for you. Ashley Kerr, my wonderful presenter, what’s going on? How are things going on your side?

Ashley Kerr:
Little by little, we had a busy week on the podcast recording. And so sad that this is our last of the week.

Tony Robinson:
I know.

Ashley Kerr:
But we just found out that Tony will be coming to my area in a couple of weeks.

Tony Robinson:
Yeah.

Ashley Kerr:
So it would be great to hang out during the day while Tony is potentially considering real estate.

Tony Robinson:
Yes, I am very happy about that. We got a beautiful contract property in West New York. I’m so glad to see one of them come together. And obviously happy that I can hang out with my presenter because I’ve never been to this part of New York before. So I can understand what all the fuss is about.

Ashley Kerr:
I know. I wonder how I can convince you to cut back on the real estate tour and come see some of my properties.

Tony Robinson:
Came to see Buffalo? Yeah.

Ashley Kerr:
Yeah. But yes, I’m so glad you and Sarah will come too. Really?

Tony Robinson:
Yeah.

Ashley Kerr:
Good.

Tony Robinson:
Sarah goes, Naomi goes. So this will be the whole Alpha Geek Capital team.

Ashley Kerr:
Oh, good. Good good

Tony Robinson:
Yeah.

Ashley Kerr:
… I’ll be glad you guys are here. I’ve already put this in my calendar and …

Tony Robinson:
That’s right.

Ashley Kerr:
… Hope my driver will drive for me, but hopefully by then I will have my car.

Tony Robinson:
Yes, crossing your fingers.

Ashley Kerr:
Yeah. So today we have a question from my DMs @wealthfromrentals on Instagram. You can always send us a message with Tony. He’s @tonyjrobinson, I’m @wealthfromrentals, or you can call and leave us a 18885-newbie voicemail. Okay, today’s question from Brandi Smith. Hi Ashley. I listen to your Real Estate Rookie podcast and love it. My husband and I have a question for you. We are just starting to invest in real estate and hope that you will have a good idea about this issue. We sell poems for money to save our current home and become our first rental. Our current home could give us about 260,000 of that income if we sold. Our plan is to purchase the property for rent for our cash income in addition to using the part for the down payment on our new home, a new construction that is due to end in May.
We need about 46 to 93 thousand for the down payment, depending on whether 10% or 20% down. However, if we keep it, keep in mind that it is a good area, good rating and good rental rates. Based on our current monthly mortgage, we could cash in about $ 1,000 a month from strictly renting compared to the cost of the mortgage. Not sure how much our monthly mortgage costs will change with the cash withdrawal option. Assuming we can get as much as we get from the sale.
So given all this question, what would you do in our situation? If you think it would be better, how would you justify it to someone if it takes about 20 years to make a profit by selling for rent only, not taking into account rental rates, just keeping the same $ 1,000 in cash flow per month for a quick scenario, comparative goals? Hope this makes sense. Thank you so much for your time. Tony, what are your initial thoughts?

Tony Robinson:
Yeah, there’s a lot, Brandy. So I just want to summarize for the listeners to make sure we have everything set up right. So the big question is, should she sell that property and reinvest that income in another property? Or should she refinance and then leave the property as a lease? Now the problem, I guess, the key difference here is that if you sell a property, you get a bigger cash payment. So she said she would make about $ 260,000 in profits if she went out and sold the property. Now that she’s going to refinance, I don’t think she’s saying how much she would have gotten if she was a refi. Did you see that number there?

Ashley Kerr:
No, that figure wasn’t there, but assuming she could pull out 80%, it would probably be less than if she had sold it. Because they say they sell for what they would appreciate. So that would be less than what she would get now, I would assume.

Tony Robinson:
Yeah. So, I would approach this, I suppose, on two things. So Brandi first said it would take 20 years to get the same $ 260,000 if she kept them on lease. But I think it’s almost the wrong view of it because she won’t just sit in this capital. She’s going to go out and reinvest this into something else. So I think I would consider what will give you the best return on your investment?
Is it to take cash, take these full 260, go out and give part of them to a new house and the other part to rent, and you figure out what is a cash back? Or can you look at the capital you leave in the property and understand what your return on capital is for what you keep on lease? And I think if you look at these two figures, return on investment compared to return on equity in real estate, it will give you a better understanding of which one might be the best solution for you.

Ashley Kerr:
And plus, that property is likely to continue to appreciate.

Tony Robinson:
Um, of course, yes.

Ashley Kerr:
Therefore, this value will continue to grow in this property. So in 20 years you will have this property value. If you still decide to sell it, then you have returned those 260,000 and then you have also invested, or you also have another amount of capital X

Tony Robinson:
That’s right.

Ashley Kerr:
… also owned. So in my personal opinion, I believe that the primary mortgage can get the cheapest debt. So what you could do instead of go and refinance, you could go and get a line of credit for a property while it is still your primary residence. And you can get a really low bet. This way, your mortgage payment will not change. This way, your cash flow will be even higher than if you increased your mortgage, and you can use the equity line to go and buy real estate, rehabilitate them, refinance, execute a birth strategy, and then repay that credit line. So you only pay interest when you make that money work for you.
So we recently had Tyler Madden and he listened to the very first episode in which he was. This is actually what he did with his main residence. Before he turned it into a lease and bought his new or next major home, he went and got a line of credit that had existing capital. Also, many times using a line of credit many banks will lend you up to 85% of the cost of housing. Sometimes I saw even 90%, my only business partner got. So where usual, if you are going to refinance, the mortgage they usually give you is only up to 80%. So this advantage is also there. Good. Anything else to add to Tony?

Tony Robinson:
Yes, hopefully this shows you the right direction.

Ashley Kerr:
Yeah.

Tony Robinson:
No, I think that’s all. Really? And a lot of these questions that pop up, so many nuances and details that we don’t have. And I think ultimately, it will be a personal decision for you. But for me, I always try to make the numbers help me make a decision. And all that will turn out to be the best return is usually the route I follow.

Ashley Kerr:
Yeah. And I also think the one thing she mentioned in this out there is that it’s in a good area, a good school. And so I think the fact that it won’t most likely not cause a headache because it sounds like it’s in the Class A area. I think that’s also an advantage. Where someone goes and tries to buy a property in order to rent it out in the area, it will be higher, sorry, it will be harder if they go and buy it as an investment property. Than, if someone has used this as a primary, let this gratitude build up and this capital accumulate in that property. So if I said I would say to save it and put on it HELOC, and use these funds from this HELOC to, you can use them for your down payment and then also use it to purchase others o ‘ real estate projects [inaudible 00:08:23].

Tony Robinson:
Yes, I totally agree.

Ashley Kerr:
Okay, thank you guys for listening. Obviously I stumble upon my words because we had a long day of recording. Yes, this is our last of the week, but we will be back on Wednesday with another guest. Let us know if you like the show, and leave feedback on your favorite podcast platform. I’m Ashley, @wealthfromrentals, and he’s Tony @tonyjrobinson. And see you next time, guys.

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