Replies (7)
- Chris Hacker, "thelendingcoach"
- Contributions:130
As far as rental income, you can't use it without a 2 year history filed on tax returns.
To purchase another property while having your current you would have to qualify based on making both payments.
You could consider refinancing your current loan to a 5 or 7 year arm to lower the payments if you are sure you will sell within that time frrame as you probably don't want the rate adjusting on you.
I would recommend getting a firm idea of value by consulting with a local, skilled real estate agent. Then work with a local, skilled mortgage broker to ensure that you can qualify for both properties or at least get a more firm idea of the overall plan to ensure it would work.
Let me know if I can be of further assistance.
- Dan, "the_country_hick"
- Contributions:4827
The one possibility that could raise house prices is massive inflation. If inflation takes off hard (very likely) and wages rise house prices could go up in time. At first house prices would fall probably massively. Higher interest rates would push prices down more. But in several years if wages increased as money became worth-less and inflation was tamed house prices could go up. This would be only by numbers. The hours worked to buy a house would not increase. Only inflation added zeroes would arrive.
Take a look at the link below to see what I am talking about.
Do you know what the housing bubble really looks like? ... - Zillow Real Estate Advice
Peter Schiff: Here's Why Home Prices Have To Decline At Least 20% And Probably More
The Fallacy of a Pain-Free Path to a Healthy Housing Market - Economic Letter, December 2010 - FRB Dallas <--- the federal reserve. They print the money and make monetary policy
10 Key Charts to See Before You Buy or Sell Your Home « Real Estate Prices & Mortgages on HousingStory.net
This shows how bad mortgages were written. How they will reset and why a chart showing that could be very optimistic. Take a look.
Reset Chart from Credit Suisse has a Major Error
What you do is up to you. This is what you are facing.
The depreciation you take will lower your basis when you latter sell the property.
Unless you are financially very strong, that sounds like a risky strategy. What if you can not rent the condo at 1900 or the difference ballons to 1800 (i.e. maintainence is always higher then expected, especially when the tenants feels entitled to it)? Or if the market does not come back in 3 years?
- Greg Cowart, "Roseville Loan Guy"
- Contributions:649
It doesn't sound like a bad strategy if you have the income/assets to pull it off. Your first issue will be; can you qualify for both house payments? Since you don't currently have much/any equity in your house you would not be able to use future rental income from that property to qualify for the new house (you need to have 30% equity in your current home in order to use the rental income it can produce as qualifying income on the new loan).
Assuming that is not an issue, and you can qualify for the new mortgage and your current mortgage with your income, you're good and I think you have a good plan. Here are some things to think about and questions to ask.
- There is a good chance it takes a little longer than 3 years to capture your lost equity in your current home. However during that time it's pretty safe to assume that rents will rise. So, while your mortgage payment will remain the same (assuming you are in a fixed rate) the income on the property should gradually rise over the years, making the monthly negative smaller and smaller.
- When you own an investment property you can deduct your mortgage interest as you can on a primary residence, but you can also deduct a lot more than that (consult your tax professional with any real estate tax questions, we just give general information). A lot of investors strategically use net losses on residential properties for huge tax reductions.
I think the first thing to do is consult your tax professional to see how it would look with your income/assets if you tried to go forward with this plan. It may make sense, but then again it might not.
Let me know if you have any other questions...
Sincerely,
Greg
- Greg Cowart, "Roseville Loan Guy"
- Contributions:649
Oh ya, you asked about a tax advantage to renting. I can not give specific tax advice but can if we keep it pretty general. There is no tax advantage in renting for someone with your income and that is also buying real estate with the kind of prices in the North Bay. You'd not only lose the ability to deduct your mortgage interest but may also lose things like medical and dental expenses, certain taxes, charitable contributions, casualty and theft losses, unreimbursed employee expenses, and other miscellaneous deductions.
If you are single the standard deduction is only $5,800 and married it's $11,600. With the kind of mortgage payment you are talking about you should smash through those benchmarks pretty early on in the year, and that's without taking into account any of the other Schedule A deductions you may have.
Sincerely,
Greg
- Greg Cowart, "Roseville Loan Guy"
- Contributions:649
One more thing...
Just a thought, but have you thought about buying the house in Sonoma and renting that house out until you retire? That way you can take advantage of today's prices and rates. Yes, the interests rate will be higher than if you were buying a new primary residence but in all likelihood both real estate, and especially interest rates, will be higher in 3-4 years than they are today.
I have a client that cannot qualify for two house payments that is doing just this instead. They are going to buy another, less expensive property as a rental today with the plans to move into it in a few years when they retire. They can use the rental income on the new house for qualifying and even though the interest rate on an investment property is higher, there is a clear advantage to doing it this way than waiting for the market to appreciate and rates to rise.
OK, I'm done! :)
Greg
- Rudi Hofmann, "LUXURY HOME LOANS CA"
- Contributions:7435
This form gives the approximate rental rate with comparable properties in your area. For qualification purposes the lender allows 75% of that dollar amount to be added to your income. You will need to qualify with both homes PITI & HOA where applicable.
For tax benefits I suggest you speak with a CPA. Regardless of Zillow's Zestimate, I think recouping your down payment in three years is very optimistic. Only your partner and you can decide if this is an appropriate strategy for you.
Happy funding, Rudi
home buying and selling
We bought a condo in Sausalito for $525K. We put down $70K. According to Zillow it's worth $360K. We are considering renting out the unit for $1900 which would not completely break even on our mortgage, insurance and property tax. Each month there would be a $1500 difference that we would have to make up.
We've been considering purchasing in Sonoma where you get more for your money and buying a house and moving up there and maintaining this property in Sausalito as a rental until the market comes back. (possibly 3 years) to at least get our money back.
Our goal is to ultimately end up with a house in Sonoma that will have a more affordable mortgage that we can pay after we retire ($1700-$2000).
If we purchased a place now, rented our property for three years and were able to get our money out (down payment) then we can apply it to new home and sell off the place in Sausalito.
Does this sound like a good strategy? Also what tax advantages are there to renting? And if one is trying to use the rental income as part of our income for loan for new place. do we have to move out now and rent it to show history?
Please advise.
Thank you!!!
Stating a discriminatory preference in an advertisement for housing is illegal. If you think this content is discriminatory or otherwise inappropriate and feel it should be removed from Zillow, please let us know by completing the information above.
We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.