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okay just the facts, I own my own home free and clear (abt $200,000) want to buy another house not as second home but to rent out worth about 180K. Should I get mortgage on my existing home to pay for the other with an owner occupied mortgage on my home and then pay cash for new one or get a mortgage on the other which would basically be an investment (higher rate). Pro's and con's? Thanks
While there is no right or wrong, I lean towards owning my primary home, my piece of the rock, my port in the storm, free and clear, and would hesitate to leverage it to cover a rental house or other investments.
You will have to put down more money for an investment property, and pay a little higher rate, but if bad stuff happens to you financially, tenants trash the place, it sits empty for a year with no rent, etc, you can let it go and have your own shelter and roof overhead.
Again, no right or wrong, just my personal preference.
At first blush, the numbers look OK for a few hundred a mo. profit but I'd keep the mortgage on the investment property if I were you.
Everybody always talks about tenants trashing a place and that is a real possibility, but it's important to ask yourself "who will rent this house?" before you buy. For example, is it near a college and could you get faculty? Is it near a hospital where you could get residents? Quality of tenant is extremely important in maintaining a house.
The house is empty right now, the question "who will rent this house" is right. The previouse renters just left without paying the last 3 months rent. They didn't really trash the place, they just didn't care because it was not their property so they did not take care of it.
Rental property interest rate will be much higher than conventional loan. Is it going to be a problem obtaining a mortgage in the current condition of the home you are purchasing? Will you be in a better purchasing power if it was a cash buy?
If it was me, I would take out a HELOC on your current home. Penfed credit union has a 5/5 HELOC rate that is very attractive with no closing cost if you keep loan for at least 36 months.
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