How to swing a move to a move up house?

[Anonymous]

Take out a HEL at the lowest interest rate you can find, that's your down payment. Then before you buy the new house, line up renters for your current place with a signed lease in hand.

[Anonymous]

Being a landlord is not fun and while it sounds like a lot, clearing $1000 over the mortgage each month isn't that much, especially if, as you say, the house needs work. You'll still need to pay taxes, maintenance, probably some utilities--trash and water, etc. also, your rental income will be taxable and your mortgage interest on that property will no longer be deductible. Finally, if you rent it for more than three years before selling and it has appreciated a lot, you'll be taxed on the gains. I say don't keep it unless you have some use for it in the future--ie your parents will move into it or your kids will.

[Anonymous]

^ Presumably the $1,000 over the mortgage includes PITI to taxes wouldn't be extra. Utilities like trash and water are usually in the tenant's name. The mortgage interest is deductible against the rental income so only some of the rental income is taxed and you can also deduct the maintanence costs.

[Anonymous]

We were in OP's exact shoes a few years ago and were able to use a VA loan - we did have to have proof of rental income before closing on the new house, so we used a management company to find good renters. It felt like a jigsaw puzzle at the time, but now we're in the forever home and the rental is doing well. Best of luck, OP!

[Anonymous]

Thanks everyone. OP here.

We have rented the house out in the past, when we were abroad for a year, so have a sense of what's needed to do it. I agree that $1000 isn't that much to clear-- it is above insurance and taxes though-- but it's just what we could get today. The spread will grow, and the main goal would be to hold on to the house as an asset. My thinking is that it will continue to appreciate, the rent rate will continue to rise, we will continue to pay down the mortgage, and it could be a good investment for us. (If we keep it as a rental, we could probably skip some of the upgrades of the things that bug me as the owner.)

But-- to do that we do need to figure out how to finance a new place. I appreciate the ideas. For 14:36, who got the VA loan, did you need to bring a lot of cash to the new place as a down payment? We are members of a federal credit union-- I wonder if they would also have some options available.

[Anonymous]

OP, if you really want to keep the house as an investment, make sure you're also ready and willing to become landlords. We did it without much forethought and struggled for a while. We decided to make a go of it, though, and read tons to learn best practices and to accept that the hassles are expected and normal. Read some books by Robert Shemin about landlording. Great philosophy.

So, what I would recommend is to take an equity line of credit out on your current property while it's a primary residence. See how much they'll give you. That's the amount you'll have for a down-payment.

Now you have to calculate what you can charge in rent; figure you need minimum of what you pay monthly (mortgage + finance charges on that equity line + utilities the tenant can't take over for some reason, etc.) and then increase it by at least 25% to account for repairs, improvements, and vacancies.

If you can manage all of that, then go for it! We started with one and ended up with five rental properties. It's a hassle for sure but long-term it's an amazing investment!

[Anonymous]

Thanks. OP here. I think we can handle being landlords. We did it before. Mustering the will to make a move, and leaving our house, which we've loved living in for a long time, will be the tough part. But if we can move to a place in our neighborhood that's a better fit AND keep our old place as an investment, even better.

Thanks for the suggestions on the equity line. How do banks think about that when they give you a new loan for a new place? Does it count against the amount you can borrow?

Would appreciate answers, but I'll also go to some banks though to talk through the options.

Thank you!

[Anonymous]

PP landlord here. What you need to do is be able to prove your rental income. In general we've been able to show current leases but you may be able to show comps or past leases so they can take that additional income into account when they're figuring out your new loan. Good luck!

[Anonymous]

Not sure about the details, but heard something about taking $ from retirement account and putting it back in within 60 days.

[Anonymous]

Anonymous wrote:Not sure about the details, but heard something about taking $ from retirement account and putting it back in within 60 days.

Yes, many people accomplish this with a 401K loan.