Throwaway account for financial numbers...

The Situation

My wife is pregnant and we're looking to move to a bigger home where we could raise our kid. Our current home is in a bit of an "up and coming" neighborhood. I want to consider renting our house out, but I'm not sure if it would be right for us.
Current neighborhood is not the greatest. A few changes recently have led to an increase in crime - including a few shootings. Part of me just wants to get out while I can. Part of me is afraid it won't sell because of that and part of me thinks it might rent easier.

The numbers

Total household income: $180k + ~$30k in bonuses and stocks (IDK if those count towards income for this)
Current mortgage:
- $340,000 @ 3.25% (refinanced summer '21 to pay for plumbing repair)
  - $330k remaining on principal
- $2,112.30 payment
Limited other debts: ~$500/mo in credit card/student loan debt.

If I punch "the numbers" into a mortgage calculator (NerdWallet), it tells me that even paying my current mortgage and other debts that I can "afford"(at 36% DTI) a second house at ~$450k. So that's assuming no renters.

Questions

Essentially... would I be crazy to give up my current mortgage at that rate?
- I've had some people tell me that even just keeping it and banking the money at 3.25% is worth it.
Or... Would I be crazy to try to rent it out given the neighborhood?

I feel like I just need someone to tell me to just sell the F-ing house, but I worry I will spend the rest of my life thinking I should have kept it to rent it out as most everyone I know that seems financially comfortable has investment properties.

Would appreciate any thoughts or advice. Thanks!

Comments

AutoModerator t1_jadzbmd wrote on February 28, 2023 at 7:21 PM

#2,119,550

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kbc87 t1_jadzlt3 wrote on February 28, 2023 at 7:23 PM

#2,119,656

Question 1 which is not even financial : Do you want to take on the responsibilities of being a landlord while also having a newborn?

alexm2816 t1_jadznwe wrote on February 28, 2023 at 7:24 PM

#2,119,675

What is the house worth?

What is market rent on the home?

Have you considered your own skill and ability to manage a rental property as a new father? I have a 1 year old and a busy work/personal life and balancing one home is rough let alone a 2nd and tenants.

ComfortableLeg8747 OP t1_jae0sy8 wrote on February 28, 2023 at 7:31 PM

#2,120,013

Replying to alexm2816 (#2,119,675)

Recently appraised at $425k. Could comfortably see selling quickly for $400k (but who knows)

FMR is ~$2400 for the zipcode.

Third question is a thinker...I think I'm willing to put in the work if it's what is best for my family. However I understand that I don't fully understand yet what the implications of having a new born will be.

Left-Landscape-3890 t1_jae1ztp wrote on February 28, 2023 at 7:38 PM

#2,120,390

Moving with a pregnant wife sounds rough. This is the worst time to buy a house darn near. You are thinking of signing up for about 5-6k in mortgage payments a month. Yikes

KReddit934 t1_jae2jbi wrote on February 28, 2023 at 7:42 PM

#2,120,561

"> sell the F-ing house."

You will not spend your life regretting not having a rental to deal with while managing a move, a newborn baby, and all the adjustments coming up.

If you need more, check out JL Collins, A Simple Path to Wealth.

GeorgeRetire t1_jae2kxc wrote on February 28, 2023 at 7:42 PM

#2,120,575

>I feel like I just need someone to tell me to just sell the F-ing house

Just sell the F-ing house.

Have you ever been a landlord? Do you really want a second job being a landlord now? Do you know what a house in an increasing crime neighborhood with shootings will rent for? Do you know the occupancy rate for that neighborhood?

alexm2816 t1_jae2qzr wrote on February 28, 2023 at 7:43 PM

#2,120,638

Replying to ComfortableLeg8747 (#2,120,013)

I've heard of worse. I'd talk to a manager about their costs to understand what you're up against.

Frankly cashflowing $1000-1250 a month with optimistic occupancy rates assuming you do all the work on that kind of market exposure is still a little heavy for me heading into your life phase but I would understand why someone would do it.

blahol8900 t1_jae2w8f wrote on February 28, 2023 at 7:44 PM

#2,120,681

Replying to ComfortableLeg8747 (#2,120,013)

Which state are you in? Landlord/tenant laws would significantly affect my answer to this questions.

Market rent is $2400 minus payment of $2100 puts you at $3600 per year before maintenance expenses + tenant turnover expenses. I could easily see this evaporating to $0 with those in mind.

You’re also confident that you have $70k of cash equity in house which, conservatively invested will net you $2,100 of income within headaches.

Also the fact that you can utilize the primary residence tax deduction (once every two years) and basically walk away with a tax free gain of over $70k (depending on improvements made, etc).

Appreciation is what you’re giving up hard to predict / peg.

On the flip side: you could rent it for a few years and then 1031 exchange it into a better neighborhood if that’s your main concern.

ComfortableLeg8747 OP t1_jae3i3f wrote on February 28, 2023 at 7:48 PM

#2,120,878

Replying to blahol8900 (#2,120,681)

Thank you this helps put it into perspective

ComfortableLeg8747 OP t1_jae3wgf wrote on February 28, 2023 at 7:50 PM

#2,121,011

Replying to KReddit934 (#2,120,561)

Thank you

WizardDresden2192 t1_jae6khj wrote on February 28, 2023 at 8:07 PM

#2,121,910

Sell the house and move on. Things get busy and expensive with a newborn even if everything goes super smoothly. You don't want the headache of finding a property manager /being a landlord with a newborn and an increased mortgage. Take the equity you have now and move on.