Purchasing Recreational Property: Thoughts on Financing

[Keim]

My family is considering purchasing a small cabin, worth $70-80k. I'd like your thoughts on financing.

Pertinent background information:
In my early 40s with kids around 10 years old
Income around $80k
Currently have mid six figures in retirement accounts
Paid off residence
Have approximately $50k in taxable investments
Have access to $75k thru HELOC

My current thought is to tap the taxable investments for $30-35k, then pay the rest thru the HELOC. Then, focus for the next couple years on "RE-FILLING" the taxable investments up to $50k again, as they also serve as my emergency fund.

What do you think might be the best way to finance?
Conventional 15 or 30 yr mortgage?
Use HELOC?

 

[pb4uski]

I would put 20% down (may be more for recreational homes) and then go with a 15 year mortgage. You'l get the best interest rate and preserve your taxable funds.

Unless you HELOC rate is lower, which I doubt.

 

[Keim]

pb4uski: Do you think there is any advantage to the fact that frequently HELOC interest is tax deductible? I'm still struggling with getting my head around the advantages of different types of loans.

I am also wondering if there are advantages to making a cash offer (i.e. tapping the HELOC and taxable investments to pay seller then rolling that into a conventional 15 year mortgage).

I've only bought one house and that was 17 years ago. I'm a little rusty at the real estate game...

 

[pb4uski]

Interest would be deductible either way so I think it is a wash.

I like the idea of a cash offer and then financing after closing. Just check with your bank or mortgage broker that that is possible in your circumstances (I see no reason why it wouldn't work).

 

[NW-Bound]

The loan amount is small, so I am not sure if the interest on it is enough to exceed the standard deduction. Are you itemizing your deductions on your tax return now?

Also, I understand that many banks are not interested in small mortgages, and want an interest rate a bit higher than market to make it worthwhile for them.

 

[Keim]

What makes the cash offer attractive to you, pb4uski?

Thanks for letting me pick your brain here.

 

[Keim]

NW-Bound: You are correct about loan size. When I looked at refinancing my house in 2009 the cut-off was $50k for them to consider the loan. Below that cost extra. Thats what decided me to pay off the house at that time. That is also why I was thinking of my initial plan, part out of taxable rest from HELOC. But, the HELOC rate varies if I understand correctly.

Not currently itemizing. We've kept our financial life very simple.

 

[heeyy_joe]

Borrow as much as you can for as long as you can. The place is a luxury and not worth tapping emergency funds to acquire.

 

[Keim]

Borrow as much as you can for as long as you can. The place is a luxury and not worth tapping emergency funds to acquire.

I agree. I should clarify: The entire $50k+ isn't an emergency fund. About 1/2 would cover me for 6 months.

 

[LongPrime]

I am thinking for our, to be, inherited beach house, is to have sister who has 50% to carry the loan in my buyout of her share, get control of the house, and then get a bank loan to pay her off since I will now show 100% ownership and will take less than 50% LTE as a loan.

 

[pb4uski]

What makes the cash offer attractive to you, pb4uski?

Thanks for letting me pick your brain here.

A quick close would be attractive to most sellers. Around here with a cash sale once the home inspection and title search is done you can proceed to closing. Usually 30 days or so whereas financings take longer because of the bureaucracy involved.

 

[Keim]

A quick close would be attractive to most sellers. Around here with a cash sale once the home inspection and title search is done you can proceed to closing. Usually 30 days or so whereas financings take longer because of the bureaucracy involved.

I thought that was it. Thanks for answering.

The different perspectives in this conversation have been very beneficial.

Please keep them coming!