Replies (8)
- mrj138
- Contributions:5
Also - we would be able to deduct the mortgage interest, property taxes, insurance, etc. which make the cost of the mortgage pretty reasonable. Just using estimates, when you include the tax savings and lower interest rate - even if I could not find a tenant, I would only be paying $105/month extra compared to my current tax and student loan interest payments and be gaining equity in something while doing so. I could charge below market rent (say $300 or even less) cover all costs and make money (which would also be tax free due to the paper losses I could take such as depreciation).
But - all of this is mostly background so you understand my motivation. The key question is - would such a home equity loan be something you think is possible (it would result in almost $3500 annual tax and interest savings).
My other question is - since this basically almost pays for itself (even without a tenant), would it have any impact on our plans to purchase a primary home in about 18 months?
The only new debt is the mortgage, which is basically covered by tenant rent and other savings and the home equity is not new debt, I am basically just refinancing student loans.
Any advice is greatly appreciated!
But - all of this is mostly background so you understand my motivation. The key question is - would such a home equity loan be something you think is possible (it would result in almost $3500 annual tax and interest savings).
My other question is - since this basically almost pays for itself (even without a tenant), would it have any impact on our plans to purchase a primary home in about 18 months?
The only new debt is the mortgage, which is basically covered by tenant rent and other savings and the home equity is not new debt, I am basically just refinancing student loans.
Any advice is greatly appreciated!
- Cindy Quinton, "Cindy Quinton"
- Contributions:2444
We have a couple (okay, maybe more) of super sharp lenders who may be able to tell you if it would work.
The biggest issue I see is that if you buy a house for $75,000 (for example) in this market, then that is all it is worth. Non-distressed homes are having to compete on the market with forclosures and short sales. So just because you get a good buy doesn't mean you actually have any equity to borrow against. What I'm saying is that those homes in Vegas that are selling for 75-100K are actually worth 75-100K that is their TRUE MARKET VALUE today....they were simply overvalued at the top of the bubble and now the market is correcting.
I guess I just can't see how you buy a home today and it double it's value for financing unless many years pass, or you do substancial work to the home, flipping it in essence....
The biggest issue I see is that if you buy a house for $75,000 (for example) in this market, then that is all it is worth. Non-distressed homes are having to compete on the market with forclosures and short sales. So just because you get a good buy doesn't mean you actually have any equity to borrow against. What I'm saying is that those homes in Vegas that are selling for 75-100K are actually worth 75-100K that is their TRUE MARKET VALUE today....they were simply overvalued at the top of the bubble and now the market is correcting.
I guess I just can't see how you buy a home today and it double it's value for financing unless many years pass, or you do substancial work to the home, flipping it in essence....
- mrj138
- Contributions:5
Thanks! I know that finding a house that is undervalued would be a challenge. But is there an argument that if I buy it for $75K but a substantially similar property in the same area that is not a short sale sells for 40% more that higher value is what I could theoretically sell it for on the market? In other words, while all home prices have come down since the top of the market, that a house on foreclosure where there is more of an incentive to sell quickly and given the other complications of short sells, woudl be priced below even the current market. Thanks again - I appreciate any advice I can get!!
- Cindy Quinton, "Cindy Quinton"
- Contributions:2444
I agree, it would be an ideal situation if you can find it. The problem is that due to the collapse of the "bubble" there are so many distressed homes on the market that regular folks who are selling have to drop their prices to compete. And the banks doing appraisals (especially for cash out re-fi's) are looking very carefully at what stuff is selling for....so the mere fact that you get a good buy on something in this market affects the value of not only the property you buy, but all similar, surrounding properties. So if you buy a house for $75K, that neighbor trying to sell for 40% more won't get offers, and if they do, the buyer can't get financed for that much. Make sense?
- mrj138
- Contributions:5
It does. Thanks again for your help. Do you think getting an independet appraisal that valued the property above what I paid would help?
- shapiroamg
- Contributions:3136
Couple things:
An equity line of credit on a property you are not occupying would be difficult to obtain.
Being a landlord of a property located across the country is probably not a good idea.
Perhaps you should look closer to where you are. There are some rural areas within a reasonable drive that may suit your needs.
I would speak to Chris Corica
http://www.zillow.com/profile/Chris-Corica/
Perhaps being a homeowner is more realistic than you think. Either way Chris can go over your situation to help you make a better decision.
An equity line of credit on a property you are not occupying would be difficult to obtain.
Being a landlord of a property located across the country is probably not a good idea.
Perhaps you should look closer to where you are. There are some rural areas within a reasonable drive that may suit your needs.
I would speak to Chris Corica
http://www.zillow.com/profile/Chris-Corica/
Perhaps being a homeowner is more realistic than you think. Either way Chris can go over your situation to help you make a better decision.
- mrj138
- Contributions:5
Thanks. The only reason why we are currently waiting to buy a primary home is that we entered into a 2 year lease 6 months ago. Which means we are planning to be seriously looking in the next 15 or so months.
Either way, I do not expect to find a home in our area (we want to stay in the city) that would be sufficiently undervalued to make this work re the home equity to refinance student loans.
I was planning to hire a management company to fully manage any rental so I would not have any direct obligations. I have a friend who recommended one that will do so for a 10% fee.
Either way, I do not expect to find a home in our area (we want to stay in the city) that would be sufficiently undervalued to make this work re the home equity to refinance student loans.
I was planning to hire a management company to fully manage any rental so I would not have any direct obligations. I have a friend who recommended one that will do so for a 10% fee.
- user598218
- Contributions:1
It is very good to became a landlord across the country and as well as you should not go with loan however. Here is some alternative
refinancearentalproperty.com
refinancearentalproperty.com
Investment Property to Refinance Student Loans
I have become tax inefficient in the past couple of years. My wife and I have a joint gross income last year of approximately $220K and we have excellent credit. We rent because we live in a large city where we would not yet be able to purchase a home that fits our requirements (and have never previously owned a home - although we are planning on buying one in about 18 months). Because of this, not only can we only claim the standard deduction (although it is within $1000 already if we itemized), but we are capped out of an important deduction - student loan interest. On top of this, my student loans for law school now stand at approximately $100K with an average interest rate of just under 7.5% (lowest rate is 6%). It is impossible to refinance these at a lower rate using any traditional means.
My thought is that I could purchase a short sale foreclosure in a down market (such as Las Vegas) at a price of 75-100K that is approximately 50% under its estimated true market value. I know I would have to put about 20% down.
Do you think it is possible to get a home equity loan for a significant portion of the remaining market value (well beyond my down payment), which would be at a low interest rate (4.5% or so). I would then use the home equity to pay off as much of the student loans as possible (hopefully at least 80K) thereby cutting the interest rate on those loans almost in half. Not only that - all of the interest would be tax deductible without any cap or phase-out.
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