So, after reading quite a bit on MMM, Bigger Pockets, and listening to various podcasts my mind has been twirling on how real estate may help my family get to FI sooner. I am hatching a plan and would like some feedback.
I have lived in my current home for 17 months. We recently sat down with a realtor and determined a very conservative price to sell the house quickly which would give me $88,750 to put into another home. Using the flipping formula of 70% of after repair value and subtracting the estimated cost of repairs, the house we are considering is just outside of this criteria. It would meet a 75% criteria though. Our down payment will be 74K, I am estimating 6K in closing costs and I think I may be on the hook for 11K in capital gains (could be less, but I am going with the worst case scenario) on the profits from the current house. So we will have to come out of pocket in the neighborhood of 3k.
The house only needs cosmetic repairs upfront but will require a major kitchen redesign in the future to make better use of wasted space and add another bedroom.
My thinking is that since we will have quite a bit of equity in the house upfront, will be using normal financing (not hard money) and we will be getting the house for such a good price that we can do a slow flip on the new house over the next year or two and turn a profit like we did on our current house. I am not counting at all on appreciation, but prices are going up currently.
We do not have all of the cash on hand to do the bigger renovations, but we can save up for those over the next year or two and pay for smaller projects with my paychecks and still max out our TSP (similar to a 401k for govt. employees if you don't know what that is.)
I will have to put in an offer that is contingent upon selling this place first and will not put my house on the market until I know the deal is secure. Also, the real estate agent has agreed to give me a 5% fee on selling my home if we do both transactions through him. I accounted for that in the numbers above.
I would love to hear thoughts and criticisms to make the plan better, more efficient, or to know if I should scrap it. One more thing to consider is that we may decide to stay in the new house for more than a few years. It is in a great neighborhood and will be a great place to raise our kids.