Planning a second mortgage
I am planning to buy a house which will be my second one. I stay in south San Jose and have a condo. My monthly payment towards this house is roughly 3k(mortgage +property tax+Hoa). Will rent it out and expecting rent around 2.5 to 3k. Second property that I am considering is close to 800k. I see that I have to pay close to 4.5k towards mortgage and property tax. I am on H1 visa, have wife, no kinds and I am single earner. My Tc is 155k. By weekly pay is 3k. After making calculations, I noticed i will probably be living paycheck to paycheck considering I get rent of about 2.5k in my current condo. A bit of my concern is Trump tax laws and that 10k deduction allowed for property and state tax. But this holds for primary residence or both of my house. Am I missing anything in calculations. I will be putting 15% down.
Dude you can’t afford that second house — at least not at 800k. Hold off buying or buy cheaper, or increase your tc.
Ok, where are calculations going wrong? 6k per month I make after tax. I have to spend 3k on condo and I will make that up on rent. So it is evened out. For new house, mortgage is 4.5k(including property tax) I can pay that from 6k salary per month
Food? Car? Utilities? Maintenance? Insurance? Clothing? Medical expenses? Entertainment? Vacations? Emergencies?
Bad cash flow for the condo. Are you sure the rent is that low? Get an agent to send you comps. Having said that, if the condo is truly going to be cash flow negative for a long time, then I’d suggest selling it and using proceeds to put more money down in the home you’ll live in. I understand if you want to hold on to it if you’re expecting a big gain in price over the next few years, that would be a good reason to hold on. But with your TC and planned expenses, you’re just putting yourself in a bind with not much breathing room financially.
Ok, but some part of payment towards condo is property tax. It is 6k annually. I am getting deductions on it. Considering trumps tax, I would no longer be able to use these deductions. But making it as investment or rental income, I can put mortgage as well as prop tax and Hoa towards expenses and get deductions
You’re capped at 10k in total deductions for local taxes (including property). So you’re correct that you won’t be able to deduct the 6k especially if your new homes taxes are above 10k. You can still deduct HOA as a business expense as well as mortgage interest, but not prop tax.
Do you have cash reserves for maintenance? Fun stuff. Replacing water heater at my rental tomorrow, $4.6K, boom.
You should be making money on a rental not cash flow negative.
That's not how it works
Um that's definitely how it works.. unless you're an amateur real estate investor who loses money like OP is about to become.
The 10k deduction for state and local taxes (SALT) does not apply to rental properties. The 3k you mentioned as the monthly payment towards your current condo.. it doesn’t include the deductions right? If so, recalculate what your net monthly outflow is. You may be slightly cash flow positive once you rent it out, even at 2.5k. If appliances are new, your maintenance and repair costs should be low. I agree with @O(login) about D2I. Save for enough down payment so that payments stay comfortable and life peaceful. No need to rush into things.
Thanks, I pay 1.8k (p+i), 400$ Hoa and 500$ prop tax
Won't you be paying taxes on the 36K you are expecting from rent?
I believe you can deduct the rental property not the land portion but the construction portion. I think you can deduct that over 27 years.
Not income taxes... He will already run it at a cash flow loss. Tack on depreciation, even bigger loss. Tack on market tankijg when bay area bubble pops, even bigger loss!
You will never be approved for that mortgage. You can only go up to 33% gross income minus debt.
I guess rent from condo will count as income, keep in mind that it will increase your tax bill.
Rent is income. All taxes, hoa, mortgage interest and construction depreciation (not the land) portion are deductable.
You shouldn’t buy as you can’t afford when things go South as your condo isn’t +ve cash flow.
what is your Debt-to-Income ratio (D2I ratio)? It should be < 37% for 15% down or < 43% for 20% down.
What is D2?