Buying house, interest only loan the way to go?

[Shoe]

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I figured the transaction costs would be too high to make this worth doing but he does have the rental income. I'd still pass though.

Also renting is not always throwing money away. I use to own but have been renting for 8 years. Looking at buying now but the more I do the math the more I realize renting is much better for me then owning.

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Renting is much better for me at the moment as well, mainly because I currently have a roommate so that cuts my rent and bills in half. I also have several friends who own who are willing to rent me a room cheaper than my current rent payment.

If I were to buy, just the property taxes + insurance + mortgage interest (even after tax deductions) + a low estimate on maintenance would be about twice as much as I am currently paying in rent.

Instead of buying I am going to continue to rent. Each month I invest into the stock market what would have gone towards my mortgage. So far, I my stock gains have far exceeded any increase (or possible decrease) in the average's home value in my area.

I would suggest finding a renting vs. owning calculator to help determine what makes the most sense for you.

[halperin]

yeah I was also thinking about just putting it into the stock market. I figured I will have to start paying taxes now since my poker winnings have become a significant amount of money and will probably make just into the 6 figures next year, how much does owning a house cut off what i would have to pay on a 100,000 income?

[Shoe]

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yeah I was also thinking about just putting it into the stock market. I figured I will have to start paying taxes now since my poker winnings have become a significant amount of money and will probably make just into the 6 figures next year, how much does owning a house cut off what i would have to pay on a 100,000 income?

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I don't actually own a home, so if I am wrong, someone please correct me on this. But my general understanding is that you will save $1 in taxes for every $3 you pay in mortgage interest.

So while it does reduce your tax bill, you are still paying more in interest than you are actually saving on your taxes.

The above calculation does not take into account if you will have any roommates paying you rent, so if you do, that may swing things in your favor. Also, it you feel that real estate is a better investment than stocks or other possiblities you may have, then by all means buy, but as I am sure you are aware, the outlook on real estate is that the boom is over and will remain flat at best in most areas for the next few years.

[octaveshift]

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interest-only loan

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building equity in a house.

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How does that work, exactly?

[pig4bill]

LOL

[DcifrThs]

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interest-only loan

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building equity in a house.

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How does that work, exactly?

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100% NO RISK!!!

[jaydub]

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interest-only loan

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building equity in a house.

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How does that work, exactly?

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100% NO RISK!!!

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They're not making anymore land ya know.

J

[gwhiz_612]

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Im currently a sophomore in college and at the begining of junior year I plan on putting a down payment on a house and renting out two rooms. I will probably be selling the house in 3-5 years since ill be out of college. I have heard that getting an interest only loan is better for short term so the money I will make will be just what the house appreciates in value. Any info or advice on this would be helpful. I still have to do a lot of research before I go further into this because I am very new to this and have recently been winning a lot of money and now want to invest it into something.

[/ QUOTE ] You are wise to choose real estate as an investment for your money. I have been doing a lot of research on it myself recently.
However this conversation is kind of useless without the numbers on the property.
How much is the house? Monthly mortgage payment with the interest and insurance? Rents you will charge?
Also how much would you be putting down? Probably 20%, lenders are getting really tight with loans right now. Post these numbers and we can try and figure your best deal.

I really like the idea of you renting out the rooms. Mainly because you live there, and own it, that gives you a better loan rate(owner occupied), plus the renters can't trash the place because you're in the home.

I would do what you suggested. Only difference is I would make it a more of a long term investment to gain the most value.
Finance the house with a fixed rate loan, using your parents as cosigners if you have to. Put the 20% down to prevent the PMI payments etc.. Run the ad for roomates, interview the applicants(important), GO.
As time passes the principal is being paid down so you're generating some equity, albeit not much yet. When you get done with school you can refinance, hopefully without your parents, and pull out the little equity you have to reinvest, or just let it ride. At this point I wouldn't sell the house, but I would run another ad to for a renter to take your spot. This is where you might generate some cashflow (aka dividends), in addition to the fact that these guys are buying you a house. Cashflow is your monthly profit after the expenses for the property are all paid. Now you have a home that you are writing off on your taxes every year, some college kids that are paying off your house, and ever increasing equity.
I'm discovering that real estate is a great way to generate long term wealth. I hear guys tell me all the time that they wish they would have done it when they were younger.
Post some numbers.

[halperin]

what i had i mind was something around a 3/3 or 3/2 around 200k. I have seen some nice ones around here for that price or less. I can put 20% down and have parents who have great credit co sign the loan. im not sure what kind of interest rate i could get doing that but i know they have nearly as perfect credit as you can get. renting two rooms at probably 550 a month/utilities included.

[gwhiz_612]

200k * .80% = 160k

160k @ 30yr/7% = $1065/mo

Assume tax and insurance @ 4k/yr or 335/mo

about $1400/mo PITI.
This doesn't include utilites, which you would pay anyway.

$1100/mo in rents leaving you paying $300/mo. Can you get a 4th person to rent?
In 5 yrs the principle is $150,611. Depending on appreciation you have now gained about $9k of equity on your $40k investment. Not a bad return.