Even if we go for traditional loan, the net result will be similar as we have calculated before. The only difference is that we have to pay additional $25,480 over 60 months as principal which we will recoup on sale at 500K. We had used interest only to make calculation simpler.
As we said earlier there is an opportunity lost for down payment of 100K and 25,480 and in any case we are planning to keep down payment safely invested for this period.
AN, we use itemized deductions due to state taxes therefore standard deduction doesn’t effect the calculation. Let us know if you think it should effect otherwise and how.
We are not sure whether AMT effect the tax deductions for mortgage interest and property taxes. We probably hit it soon.
[quote=BuyOrNot]Thank you for your feedback. We got it that maintaining a rental property out of state is not easy and it will not be financially viable.
There was very legitimate question asked why we are thinking about buying at first place considering short time period of 5 years. The reasons (not in priority order)
(a)renting from last 10 years
(b)most of our friends have homes and it is putting some what pressure on us
(c)it is making sense financially somewhat as compared to 2006 lets look at the example numbers below
Prop bought for 500k with 100k Down
400k loan Closing cost = $4000
At 5% Interest only loan
Interest $1667
Prop tax $625 (at 1.5%)
Federal Tax rate of 28%
State Tax 9.55%
Effect Interest and Tax = ($1667 + $625) * 0.6245 = $1431
Add about $169 for insurance and hoa etc
Total monthly money out of our hand is $1600
Compare it with renting a property for $2000 we save $400 per month and over 5years (60 months) we are +$24000
Add 8000 federal tax credit and 10000 state tax credit then we are +$42000
Now assume we will able to sell the home for the same value of 500k after 5 years. Then after 5 years 6% commission + closing cost – $42000 = -30000 – 4000 + 42000
= +$8000
The positives assumptions if work out (most likely) then it can add to saving even more
(1) The one variable is that we may not able to get similar property for $2000 as rent if I look today the asking rent is about 2200$ plus for similar property.
(2) There is always an opportunity to get the property for less than 500k currently.
We are assuming to keep down payment conservatively invested so there is not much of a loss of opportunity for $100k down payment
These are the reasons we started thinking of buying property and planned to get feedback from “piggs”. Let us know if we are missing some thing in calculations above. What “piggs” recommend now?[/quote]
