Hi everyone - have put an offer on a property that I intend to rent out, probably until I retire from the military (8 years). The money that eventually comes out of this house will be the money that I put towards my own home after I retire, and I may possibly live there at the end of my career (this would not be a permanent location).
Offering $140k for the property, asking price is $142,500. This is a condo unit, very nice, in a 10 year old gated community. I will be able to keep it rented (I'm pretty certain) 95% of the time, as it's close to base, and this area will stay in demand over the next few years. Only way that it could not is if there is a huge drawdown, and I don't see that happening for a while.
Wells Fargo is offering 6.625% for the mortgage (it's this high because it's considered an investment property. I was originally quoted at 7% but was told my credit score brought it down some), a 30 year loan. Principal and interest should be $672, HOA Dues $134, Taxes $50, and I figure about 10% paid to a property manager would be about $86. I would need to rent it for $950 to break even, and I should be able to get that, possibly a little more. I will put down $35k, leaving a $105k mortgage.
Here's the question. If I deploy again, I could throw all of my pay towards this mortgage, and with another bonus that I should be offered this year, could come very close to paying it off in about a year and a half. Is there any really good reason not to do this? To me a rental property is higher risk than mutual funds, there is a lot that could go wrong. After paying it off, it would be straight profit, and that would cover anything that could go wrong, plus build towards retirement.
I would not get a mortgage tax deduction (Not sure if you do for a rental anyway), but would still be able to deduct HOA and property manager's dues. I would also be able to claim depreciation over the years, which I think is pretty significant. Any good reason not to? Is there something else I need to consider?
Also - I have rented my own property out before and sold later, but think this time I will keep all expenses separate. Would you recommend opening a completely separate checking account for all expenses?
Thanks for the input.
Offering $140k for the property, asking price is $142,500. This is a condo unit, very nice, in a 10 year old gated community. I will be able to keep it rented (I'm pretty certain) 95% of the time, as it's close to base, and this area will stay in demand over the next few years. Only way that it could not is if there is a huge drawdown, and I don't see that happening for a while.
Wells Fargo is offering 6.625% for the mortgage (it's this high because it's considered an investment property. I was originally quoted at 7% but was told my credit score brought it down some), a 30 year loan. Principal and interest should be $672, HOA Dues $134, Taxes $50, and I figure about 10% paid to a property manager would be about $86. I would need to rent it for $950 to break even, and I should be able to get that, possibly a little more. I will put down $35k, leaving a $105k mortgage.
Here's the question. If I deploy again, I could throw all of my pay towards this mortgage, and with another bonus that I should be offered this year, could come very close to paying it off in about a year and a half. Is there any really good reason not to do this? To me a rental property is higher risk than mutual funds, there is a lot that could go wrong. After paying it off, it would be straight profit, and that would cover anything that could go wrong, plus build towards retirement.
I would not get a mortgage tax deduction (Not sure if you do for a rental anyway), but would still be able to deduct HOA and property manager's dues. I would also be able to claim depreciation over the years, which I think is pretty significant. Any good reason not to? Is there something else I need to consider?
Also - I have rented my own property out before and sold later, but think this time I will keep all expenses separate. Would you recommend opening a completely separate checking account for all expenses?
Thanks for the input.