Sell my home or rent it?

[28andlearning]

I currently own a house and have talked to the bank to purchase a second home... I have a few friends who have rentals and they all have done really well for them selves. So obviously I want to rent mine.

I am very handy, I have fixed everything that needs fixing, the house is 5 star energy rated, I have researched the market etc. The house will rent for what I want. My neighbors rented their house in a single day.

Ok, with that said...

My bank is requiring 5% down for the next home, conventional loan.
They can use my retirement as a cash reserve to get me past the rental ratio/reserve portion. IE: They won't require me to tap into my retirement, just need to make sure I have the funds in case something goes south.

My problem is if I do not sell my home I don't currently have the down payment for the next home. I am about 10k short. So my question is, what would be the best method to get the rest of the cash?

Loans/gifts from family are out of the question.

I have enough equity in my house if I was to sell I would have enough to get the required 5% down the bank is requiring.... I also have enough in my 403b to borrow if that's an option. I have a motorcycle that is paid for that I could sell to get another 3-4k. This would still leave me 6-7k short depending what I get for the motorcycle.

I have have other assets, but I don't want to liquidate them.

Any advice from someone here who has been in my shoes?

I am looking to move ASAP as the area I want to move rarely has homes come available in that area, no more future development and they have an acre of land... Which is A LOT where I live. Most people have 4000-5000sqft lots.

[disneysteve]

My bank is requiring 5% down for the next home

They can use my retirement as a cash reserve

I also have enough in my 403b to borrow if that's an option.

I am looking to move ASAP as the area I want to move rarely has homes come available in that area

Whoa! Lots of big red flags here.

Do NOT buy a home with only 5% down.
Do NOT use your retirement accounts as collateral.
Do NOT borrow from retirement accounts EVER for ANY reason.

If you don't have the CASH for a 20% down payment, forget about it.

Not that it makes any difference to my answer, which is still a firm NO, but I'm just curious. How far away would the new home be from the one you would be renting out?

[TBH]

Look, I hear you, I really wanted to keep our first house as a rental when it was time for us to trade up. But I couldn't have done it without being dangerously short on cash reserves. So I sold our first house to buy our second one, waited five years, and then was finally able to buy a rental property without risking too much to do it.

It's a mistake to think that whatever house you want will ONLY be available now so you have to move on it now. The truth is, the time to buy is when you're ready to buy. When that time comes, you may have to wait a little while to get the exact house you want but the house will be there when you're financially ready for it. I don't buy this scarcity argument that you need to buy now to get into the area you want.

Stay in your current house. Save money. When you have a 20% down payment without touching your retirement AND with a full emergency fund, then buy a new house for yourself and rent the old one.

OR sell the current house in order to but a new one (but also I agree with Steve that 5% down is not enough.)

The economy is strong right now but it won't stay that way forever. You could end up upside down on two houses. Do not buy with such a small down payment. Do not borrow from your retirement. Everything could work out and you could easily recoup your investment through rental income, OR you could be really really screwed. This is too big a gamble. Sometimes we have to be patient to get where we want to be and I think this is one of those times.

[28andlearning]

Thanks for the sound advice. I agree, I was leaning towards renting is a bad idea due to the risk. I also was leaning towards using retirement funds was a bad idea.

New house is roughly 18 miles away from my current place. However, I work in town so if anything needed fixing in the rental I am in town on a daily basis.

I have a few friends with rentals and they all have been in my situation and they decided to rent theirs and its still rented today. Where I live the market has been pretty stable, but agreed there is a lot of risk.

I could put 20% down if I took equity out of my current house to buy the new place. There are only about 300 houses in the whole city where I am looking to move. So houses for sale are hard to come by. Usually someone has to have a life altering decision to move out of that area or the house is complete garbage as its been there for 80 years and no up keep. I have been looking to move into this area for 7 years now and something finally came available.

I would also agree that emotion is dictating the purchase more than reality of what could happen if I didn't have a tenant etc.

[NeedMoneyAdvice]

Duplex?

Have you considered purchasing a duplex?

[28andlearning]

After talking to a Financial advisor and some real estate friends this is the information gathered.

If I make under 150k combined income the depreciation, maintenance, capital expenses etc can be a huge help to "hide" income.

Move current home using quick claim deed to LLC for liability reasons, separate business bank account for rental.
Require renter to have renters insurance.
Even if renter is just paying enough to cover mortgage and insurance, this is basically free money to pay down my asset, after depreciation maintenance etc, returns could be as much as 10-15k/year. This means in 2 years the investment would pay off fiscally, not to mention how much lower my mortgage would be paid down. In 2 more years PMI will fall off current house, allowing me to make more $$ monthly.

In 15 years the rented house would be paid for and then I would be netting over 2k a month cash. This would pay for my new mortgage...

Even if I had to feed this rental 300/mo... That's $3600/year loss, with depreciation, losses etc this will allow me to reduce my overall income much more than the $3600/year it costed me.

Makes things very interesting for sure now that I have been fully informed.

Not to mention all the tools, miles driving into town, etc that can be written off for business use.