Higher Interest
My thinking in taking a higher fixed rate on financing (6-8 rather than 4-5 using home equity) is that the balance will decrease slower....the interest will be tax deductible and paid by the renter...my cash flow will be higher...the capital gain will be lower when I sale the property.
Do you have to claim depreciation? If you sell the property doesn't the depreciation claimed come back to bite you in the butt because it increases the difference between beginning value and sale price? Please straighten me out if I am wrong. I need to make a decision on financing within a couple days.[ Edited by whitesimon on Date 06/17/2004 ]
Hey,
I have to admit this is the first time I have ever seen anyone come up with this idea!!!
If I understand your question correctly, you think it is better to pay a HIGHER interest rate than a LOWER one because the interest is Tax Deductible.
Let me explain tax deductions to you: you pay $1.00 in expenses and the government will pay you $0.30 back. Does that seem like a good deal to you? All things being equal, it is ALWAYS better to get a lower interest rate.
As far as the equity increasing (you called in balance decreasing), that is what you want. The faster, the better.
And yes your cost basis will decrease as you claim depreciation, but it offsets any profit you make and any loss can be carried forward.