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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
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
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
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