What's The Best Financing
I am about to purchase my first SFR income property and would like to know what my best option would be to finance the property. We plan on holding it for the long term to create an income stream. We will be renting out the property and will enlist a management company to collect the rent and deal with any major repairs. We plan on purchasing a newer home, no more than 5-7 years old.
What type of loan would you suggest? :-?
30 year
Home Equity
HELOC
ARM
Interest only
Hard Money
Here are the details of my situation:
We own and currently live our primary residence.
The mortgage has been paid in full.
It is valued at approximately $200,000.
Our credit score is 767.
We carry no revolving debt.
Thank you,
pataz
If I was holding the property for a long time (five years or longer), I would definately get 30 year loan.
If I am holding the property long term for retirement purposes. I only take out a loan for how long I plan on working. I do not want to pay a mortgage after I am retired.
Lori
[addsig]
You should consider the appreciation rate in the area you are purchasing. If the appreciation is good, then you'd be okay with any type of financing. Most investor's are looking for property that cash flows immediately or in the short term. ARMs and Interest Only loans will accomplish that in most cases.
Ignore appreciation, it's not guaranteed and can go either way. It's just icing on the cake.
If it's a longe term hold, then go for the fixed 30 yr mortgage. Then if you decide you want to pay if off faster, you just increase the size or frequency of your payments. Make sure that you tie yourself down to as little of a required payment as possible, and then pay more if you want.
Good luck.
Arms and interest only loans are only going to result in trouble if you plan to keep the property. If it won't cash flow on a 30 year note you shouldn't be buying it. I expect to make a lot of purchases once rates go up and all these people who thought they were smart using arms and interest only loans lose thier properties. As I've said before, every house I own was someone elses failed attempt at being an investor.
Appreciation in general will do an about face when interest rates go up, some areas may have special circumstances that will allow it to continue. I agree completely with alexlev, it's just icing on the cake if you get it, to plan on it is just plain unwise.
I agree with Lori about having a plan to pay it off by the time you plan to retire, but I don't think a shorter term loan is the way to go, if your world falls apart it doesn't leave you with the manuver room that a 30 year note will. By all means plan to pay it off earlier if possible though.
You've received some excellent advice above.
I agree. The 30-yr fixed interest term is the best way to go for long term holds. If you want to pay it off faster, then you have the option to do so (make sure you don't get a prepay penalty).
I'm going to go one step further with this though. IF you're current place is valued at $200K with no mortgage, then get a line of credit for whatever amount that you can get. Then you can make straight cash offers on properties (and almost aways get better deals). After you own them, simply do a refi on it and pay off the equity line.
Roger
As Raj says, lever up your existing house first. The interest is tax deductable, we are are extreemly low interest rates. Lock in 30year fixed rates. This is capitalism at its finest. Borry the money at 7% invest it at 12%.