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Investment property loan or cash out or other?

Hello
I own a house (fully paid, no more mortgage, valued at 251000).
I would like to buy a investment property (single family) for rental.
Investment loan has a higher interest vs cashout loan on my current house that I own. Can I do that? what are the impact on tax? can I still deduct interest ?
is there a cheaper way?
let me know
Thanks
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October 22 2009 - Briargate
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Profile picture for pglowacz

By the way (excellent credit score) the value of the investment single Family is 160000

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October 22 2009

You should consult with a CPA for tax implications.   The interest can be claimed as deductible in both cases, but the method and location of the deductino is different and your CPA can advise on that.

Personally, I'd rather have a mortgage on an investment property than my primary residence. Investment typically works best if your monthly rent collected is enough to carry the mortgage, taxes, insurance, maintenance, vacancy, possibly property management AND still leave a cushion.   So you have to work out the numbers and see what size mortgage fits into that equation.

The opposite angle (in favor of cash out of occupied) is that often an all cash purchase can secure a much better acquisition value than a purchase contingent on financing, so you have to consult a local real estate agent and see how much influence this has on your local market.

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October 22 2009
I would recommend using the equity in your current home for purchasing the new property.  You can sometimes obtain a better deal on the investment by offering a quick close cash deal since you'll have the money available.  You'll also get the benefit of lower interest rate with the lower LTV and owner occupied mortgage. 
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October 22 2009
I'm an investor as well as a Realtor.  What I did was take money from my home and put down money on my investment property.  It worked out great for me.  It kept my payments down on my 4/plex.  I now had a payment on my primary home, but at least I could afford the 4/plex without worrying so much about the payments.  My interest rate was lower also.
Hope this helps.
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October 23 2009
It looks like it was mentioned. But you probably want to look at doing a mix between both types. Take the cash out to make a substantial down payment to obtain the most favorable rates on both loans. But as you have enough equity to pay cash for the investement you may be able to negotiate a much better purchase price as a fast close cash buyer.
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March 12 2010
 
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