1st Time HomeBuyer/Potential RealEstate Investor Question?
February 5, 2010 by
Filed under realestate rentals
After an unexpected tax bill this past April our accountant said we need to buy a house (we live in San Francisco) for the mortgage intrest write off. We do not have an acceptable down payment for our desired location but were wondering if it would be prudent or even possible for us to first purchase a positive cash flow vacation rental condo and the take out an equity loan for a down payment on property #2. We have good credit (720/750) and verifiable income around $200k/yr. Any suggestions on what we should do/who we should contact for help? Thanks.
Step away from the accountant and find a fee based financial planner. This is someone you pay for their advice not someone that gets paid a commission for handling your funds. Sounds to me like you’ve got a crappy accountant: “a surprise tax bill”? If he was worth the money you pay him there wouldn’t be any surprises.
You would need to buy the condo outright in order to have equity in the condo, on rental property you pay much higher taxes, are you certain the vacation property would earn money for you? Contact a good Real Estate Agent and let them know what you would like to do, they can point you in the right direction. Best Wishes!
I am not sure the motivation for buying a house is only writing off mortgage interest. In the long run one is always better buying your own place. Inflation and rent increase makes renting a very expensive option.
When one buys a house, the amount that is owed is fixed. The value of the house goes up on average by 4%. Lets take a house that is worth $100K. One puts a downpayment of 10K. If the house goes up by 4%, what is the return on investment: 4K/10K. In addition the interest is tax decuctable, plus the amount of the money that is owed to the bank deteriates by an average of 3%. In the end one is far better off buying than renting.
The second option of buying a vacation property and then refinancing for a deposit on the house…hmmm…I have never seen vacation property as an investment…unless one owns the building. Buying a vacation property is generally a bad idea unless one knows what one is doing and has experience in the business. One usually lands paying in each month. I would rather suggest buying a straight rental property that is cashflow positive i.e. that puts money into your pocket each month of about 15% of the deposit amount in year 1(excluding principal payment is additional).
There are lots of ways to find a property with no down payment for the house you want. Some examples:
- Distressed sellers e.g. pre-foreclusure
- Quick sale e.g. deceased and the heirs are selling it off and just want to get rid of it – bank will pay deposit…similar people relocating
- Seller finances deposit to slow down capital gains taxes
The list is endless.
The deals are out there.
Good luck