As stated in the title, I'm going to be taking on some new challenges over the next few months and taking the plunge into becoming a landlord. This has been something that I have contemplated doing for quite some time, but I have never really wanted to take the risk. I've had a few major changes that will be happening in my life that made me want to take the next step.
The biggest push that has fueled my decision into purchasing a second home and renting out the first one has been my engagement to my Girlfriend! We've been together for 8 whole years and it was finally the time to make the plunge. With our new engagement came an opportunity to finally live a life alone without roommates. I've never really spoken about my home life but I currently have 3 renters in my house which can create a lot of extra stress and commotion within our day to day life. We want start our new life together on the right foot which we feel will be met once we finally live alone.
Since this is going to be a massive change to my finances I wanted to get some numbers down and blog about how everything will be changing. With this new change I realize that it may be near impossible to hit my 2018 annual fund goal of $100,000. I'm a little bummed about this but I understand also that my current renter situation wasn't going to last forever.
Positives of Renting vs Selling
With purchasing a second home, a lot of complexities come on to the scene. I want to focus on the positives of this situation first and then explain how it is going to affect me negatively after.
The first big positive is that I'm going to continue renting out my current home to my roommates and I'm going to simply be moving into the second home to live within. This is a major plus since I already have reliable and established roommates living here where I don't have to worry about not getting paid or the house being destroyed. I'm going to be renting out the home to my cousin also which will be for a total monthly income of $1,000. This is a steal because renting compatibles in the area for my home are easily within the $1,400 range.
I have really spent a lot of time thinking about this but I currently already make this amount in rental income each month so I figured it would be okay to still ask for this amount monthly from him. The other positive out of this as opposed to not selling is that every month my mortgage principal will continue to drop which equates to more value for me in the long run. I'm going to be paying nothing for the house what so ever while still building long term wealth due to home appreciation also. If the real estate market continues to have a bullish run my home value will continue to climb to new heights.
Even though I won't be making extra money in income currently I'll still be building long term wealth and equity which to me is a very important and big deal.
Worries and Risk
Here is where my worries and fears come into the equation. I tend to over think things ,which can be a good thing but it can also hurt once in awhile. I can't help it that I continue to have certain fears around this new adventure I'm under taking and it's hard for me to not take the safe and secure route of simply selling my current home and rolling the equity into my new cheaper home.
First off, I'm currently not paying a penny other then the utilities to live in my house right now. My rental income from my 3 renters completely covers all the costs associated with my mortgage, taxes and home insurance. This has provided me with a very nice boost in monthly income and has allowed me to really save up a lot of money to invest into my Independence Fund. This will all be changing however as once I move out I will start having to pay for my new home.
This is both a good thing and a bad thing in my eyes however. Firstly, The monthly expenses on this new home are going to be higher then my current one that I'm going to be renting out. So I'm essentially going from paying nothing currently into now paying a good chunk of my income towards housing again. The rental estimate on my home is $1,500 per month but I'm going to be renting it to my cousin for a deal of $1,000. I wont really be making any extra money off of this deal however.
The second thing is current real estate equity I have In my home. Currently I can go and sell my house for $210,000. I only owe $96,000 on it so I would be walking away with a nice chunk of change. I would of course roll most of this money into the new cheaper home and invest close to 20% into my Independence Fund. With all that said and done I would then only owe around $60,000 on the new home which would be amazing! Not only would I be reducing my debt amount but I would also be able to invest a good chunk of this into the market which would help me hit my annual investment goals.
I'm faced with a difficult decision but I'm currently leaning towards renting to my cousin who is stable and reliable. If I had to try to find a random family to rent out my home, I think I would be leaning towards other options such as selling the property. I still have a few months to make up my mind and I'm excited to post about which decision I decide to make. If anyone has any advice for me, I'd love to here so in the comments down below.