Buying house, interest only loan the way to go?

[halperin]

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.

[maxtower]

If you can afford the monthly payment, getting a traditional mortgage is cheaper than an interest only loan because even though the monthly payment is more, the interest portion is less due to a lower rate.

[ArturiusX]

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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.

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Don't get involved with a marginal property move if you're not an expert in this kind of environment. You have been warned.

[T50_Omaha8]

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house appreciates in value

[/ QUOTE ] Houses are NOT a good investment in some situations.

The main reasons houses are a good investment for most people:
1) Most people hold onto them for a long time.
2) People can build equity in something they derive utility from.
3) Intrest payments on mortgages are tax deductible.

How well does each of these reasons fit your case?

[spex x]

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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.

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Buying a house for a short-term hold period is probably a bad idea unless you can get the house for about half of the fair market value. Also, there is no guarantee that your house will appreciate. That kind of thinking is what all the Miami, Vegas, DC, etc. speculators thought right before they went busto. Second, you haven't considered the transaction costs, which are extremely high in RE, and will eat whatever appreciation you can get in five years anyway.

Third, I don't know what your credit and reported income are like, but honestly being a sophmore in college that plays poker for a job, I doubt that you're a great candidate for a loan. You could maybe get a no doc loan, but I suspect that you'd be paying about 8.5% or more, which will likely make renting more attractive cash flow wise. Not to mention that there is basically NO WAY in hell that you'll get out of having to put 20% down. You're probably better off just putting that 20% into a mutual fund or something.

In sum, your idea probably isn't going to be very lucrative. I wouldn't suggest it at all.

[GittyUP]

Second Spex on this one.

Unless you can find an investor to hold the loan for you (parents maybe?) I would stay away.

[halperin]

Parents who have credit credit will co sign on the loan for me so i dont think getting a loan is a problem. Currently I am making just into the 6 figures a year so the monthly payments wont be a problem, plus i would be renting out some rooms to compensate some.

the other alternative is putting the money into the stock market and just renting an apartment for the next few years here. i just feel like why throw away that 550 a month when i could be building equity in a house.

[spex x]

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i just feel like why throw away that 550 a month when i could be building equity in a house.

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You should look at an amortization table to figure out just how much equity you'll have in the house after 60 payments. Its not too much.

I don't necessarily hate your idea. But I think that you've got a lot of stuff to think about before taking the leap. You need to figure out how much money you can make, how you think your realistically going to make money, how you're going to make money when your first idea doesn't work, how bad your going to get burned if neither of your ideas works, the amount of work its going to take to be a landlord, and then compare all that to the potential returns of other investment types. IMO, your plan is ONLY workable if you are able to buy a house for about 65% of fair market value or less. Since you don't know how to get properties for way less than FMV, I'd say that the chances of success are pretty slim.

[scotchnrocks]

I don't understand the reason for getting an interest-only loan. If I remember correctly, the closing costs are a little higher and you pay interest on the principal that is not being reduced. So if a 30 year fixed has principal + interest of $250 + $750 you are paying the $750 part every month. Might as well pay the principal part too so you can reduce the interest a little every month and not have to deal with the exposure to a rate reset should you decide to keep the house as a rental property.

All that aside I still wouldn't do it because of the hassle and as mentioned the transaction fees will kill your bottom line.

[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?