Renting out current home to fund new rental — advice appreciated

Renting out my home to buy next investment property — advice appreciated

I first purchased a vacation home in an increasingly popular area for NYC weekenders four years ago. I fixed up the entire house over the course of two years with hybrid DIY and contractor work.

Realizing the knack my wife and I had for transforming our old home and being design forward, we took the plunge on our first rental property. This is a seasonal vacation area but is popular in both summer and winter (skiing) so shoulder season is fairly short.

So far it’s done well thankfully. Some quick stats:

Purchase price: $139,000 (25% down)

Renovation: $70,000

Appraised ARV: $310,000

Monthly PITI/maintenance: $1100

Cash flow: $2,800/month

Across both my main home now and my rental property I’m about 30/70 debt to equity. It’s been grueling at times but we’ve built up a sizable amount of equity and put 25% down on both houses. The market has appreciated at a good beat as well.

So now I’m eyeing my next rental property, but I enjoy buying fixer uppers and renovating to our standards. Of course this has the negative of extended downtime before it’s rental ready. I’m thinking of putting my main house up for rental (it’s definitely not a “forever home” but great for a young couple with a kid) to generate immediate cash and move into the new house to fix up.

The monthly excess cash generated will certainly cover the new house nut, but it’s $275,000 as the market is a bit hot at the moment. From a cash flow perspective it works but CoC looks a bit weak since it will probably need $50k of work before it starts bringing in $3k+ month after expenses.

Also I’d only be putting 10% down on this one. The location is absolute prime within the area though and is starting to gentrify so I think outlook is strong. NY annual tourism report shows consistent double digit growth in spend.

I guess my main concern is I’ll be leveraging up a bit more and I definitely feel like I’m overpaying in the heat of the pandemic. On the flip side it makes sense from a cash perspective as I’ll immediately be using cash flow from my main house to pay for this new property.

submitted by /u/crek42
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source https://www.reddit.com/r/RealEstate/comments/ijwwgk/renting_out_current_home_to_fund_new_rental/