Question:
Does our current home make a good rental so that we can upgrade our primary residence?
Can we afford this dream house?
Current Primary Residence:
Market Value Zillow Estimate: $186,521
Original Purchase price: $137,240 in 2015
Original Mortgage Amount: $123,516
Interest Rate: 3.75%
Mortgage Term: 30 years
Term remaining: 315 payments
Amount remaining on mortgage: $114,542.35
Gross Rents: Estimated between $1,250 /mo (zillow rent est) or $1410/mo average (rentometer)
PITI: $759.02
HOA costs: None
Maintenance notes: Will need some electrical work before renting, estimated around $5,000 to move breaker box in garage out from under drainage/plumbing. We are planning to do this anyway so I'm leaving it out.
Here is my estimate for making our house a rental after we move the electrical.
Mortgage Payment (w/ PITI) $759.02/mo $9,108.24/year
Est. General Maintenance / Processing Fees 2% $336.00
Est. Vacancy 5% $840.00
Est. Repairs 7% $1,176.00
Est. Lawn 3.5% $588.00
Est. CapEx 6% $1,008.00
Yearly Total Potential Expenses: $3,948.00
Rental Income Potential @ $1,400.00/mo $16,800.00/yr
Known Expenses PITI: $9,108.24
Cashflow with known expenses $7,691.76
Cashflow Minus Potential Expenses $3,743.76
Why we want to move:
- Lived in the same neighborhood for 10 years and want new scenery if staying in this city longer
- Would like larger kitchen to avoid stepping on each other
- Current home in great location near university and has cash flow potential
New home looking to make an offer this week:
Asking price: $325K
Zillow estimate: $318K
Offering: $280K
Estimated mortgage: $1260/month
Total cash reserves: $94K (includes subtraction for electrical)
Investments, 401K, IRA: Approx $290K
Loans or debt: $0
Cash to close including 20% dp: $65,574
3.75% Preapproval
Remaining cash for emergencies would be: $28,426
Future House:
2BR, 2BA, 1700 sq feet.
One "den" area could easily be made a 3rd bedroom.
On the market for 4 months because it is a unique style home architecturally (vaulted ceilings, city view) which we really like but it's not the norm and likely scares away others. Needs bathrooms remodeled. Has intimidating driveway, no back yard but otherwise a totally amazing dream home with a city view. Also has potential to airbnb the top floor which has a private entrance. Good neighborhood, close to work.
Rentometer: $1,308 however the architecture and "cool" factor make this house more desirable and I think could rent for $1600
Extraneous factors:
- One of us is full time employee the other is freelance with good but variable income
- Dreams of moving to another city or leaving the country but no real plans are in action any time soon. This is the x factor of "we don't really know what our grand life plans are".
So our mortgage would go UP about $500/ month but the rental would make between $300 - $640/month in cash flow depending on any expenses it may have.
Remodeling of the bathrooms would dip into savings.
Is this more house than we need?
THANKS ALL FOR ANY ADVICE!!!