Author Topic: Weighing my options, and looking for advice  (Read 834 times)

snacky

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Weighing my options, and looking for advice
« on: January 24, 2017, 09:31:13 PM »
Hello
I'm dealing with a long term, potentially permanent illness. I'm in a lot of pain and have little or no energy. When something needs doing I can get up and do it, but then pay for it later with increased pain and fatigue.

I'm receiving long term disability insurance payments, which are more than enough to keep myself and my kids properly cared for.  I'm not comfortable just relying on insurance money to pay my way in perpetuity - I'm in my mid 30's and I can't see them willingly paying me until I'm 65. I want to set up some alternative income stream(s) so I can have more security. Ideally I'll recover and go back to work, but realistically I should plan for that to never happen. Hope for the best and plan for the worst, right?

My intention is to build financial security for myself through real estate. here's the situation:
-My mortgage will be paid off in April. My house is worth $150k and I have a $25k untapped HELOC on it. The house would rent for ~$1300 per month, if I put ~$5k into it.
-I have ~$45k in savings and investments, and this amount is growing steadily. I'm not comfortable having less than a $10k cash cushion, so it's effectively $35k plus the HELOC that I have for a down payment.
-It looks like if I have 3 duplexes I'll have enough income to live on.The numbers obviously vary based on specifics,  but that's the general idea. I'd like to have three duplexes within the next decade, or an alternative plan.

My options, as I see them:
1. Stay in my house. When the mortgage is done it will cost ~$350 a month for taxes, insurance, and maintenance. (for maintenance costs I'm using the 10% of property value annually, both here and everywhere else in my calculations)
With this low cost of living I can put money into investments at a decent rate. Low risk, low effort, might not be sufficient if I suddenly need those alternative revenue streams.

2. Stay in my house and buy an investment property. Ideally a duplex, to diminish the risk of vacancies. In my area an acceptable duplex costs $200k and brings in ~$500 per month after all expenses and maintenance and vacancy fund and all that. (All of my profit estimates are conservative because I love me a nice fat margin of error) I can save up and buy duplexes one by one, reaching my goal in time. Duplex #1 would be buy-able this spring or summer.

NOTE: At the $300k I can get multifamily properties that have profits of $1k per month or more. I don't currently have the down payment funds to take this route.

3. Buy a bigger house. With an additional bedroom I can house international students for $700 per month. With two extra bedrooms I can take 2 students. A house that would work for this idea would cost ~$200k. My calculations show that between the increased costs of a more expensive home and the potential income from students, I would roughly break even. Breaking even is $350 better than staying in my current house.
(buying a smaller house isn't an option - I have one of the cheapest liveable, safe houses in my city and we are crammed in here like sardines. Neither my kids nor I would accept a lateral move or downsize)
   a) sell my current house, and use the proceeds to:
      i) invest in 1 or 2 income properties.
      ii) invest in the markets
   b) rent out my current house and net $800 per month
   c) re-mortgage my current house and rent it out: net $250 per month from that house, have enough for down payments on 1 or 2 investment properties. End 2017 with at least three properties, two rented out and one holding my family plus student(s).

On paper option 3c is the clear winner, but going from bedridden with no landlording experience to bedridden with multiple income properties in the span of a few months seems like a lot. Trial by fire intro to landlording isn't ideal, particularly in my current health.
If I were your friend, what would you advise?

Another Reader

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Re: Weighing my options, and looking for advice
« Reply #1 on: January 24, 2017, 09:44:41 PM »
With your health situation and no experience, I would opt for keeping your house and paying off the mortgage.    With only disability insurance income and no rental property history, I don't see how you will qualify to buy a duplex.  Have you spoken to any lenders yet?

You will probably have to apply for Social Security Disability at some point, if you are eligible.  Are you receiving child support for the kids?

snacky

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Re: Weighing my options, and looking for advice
« Reply #2 on: January 24, 2017, 09:50:58 PM »
With your health situation and no experience, I would opt for keeping your house and paying off the mortgage.    With only disability insurance income and no rental property history, I don't see how you will qualify to buy a duplex.  Have you spoken to any lenders yet?

You will probably have to apply for Social Security Disability at some point, if you are eligible.  Are you receiving child support for the kids?

My insurance income is enough for me to qualify - I looked into that.  I have documents showing a $40k income while I'm sick, and $60k when/ if I go back to work. That satisfies the bank.
I don't know if that would extend to having multiple properties, but if I decide to go that route I can talk to a mortgage broker or bank and see if it will fly.
I'm Canadian, so the social security thing looks a little different here, and i won't be eligible for quite a while, if ever. I have applied and spoken to a claims advisor.
I get child support intermittently, so I don't include it in any planning.