We are considering buying a vacation rental in St Thomas, USVI.
We currently have a house in Tampa, Fl. worth around $260k - with no mortgage... it was paid off in full back in 2008.
We do not have the cash in hand to put down the necessary 20%+ on this new purchase at this time, so understand that we can't get a mortgage of say 90-100%.
I'm assuming our best path (all things being equal) is to mortgage our current house to raise this deposit of say 30% and to have 2 mortgages.
Was hoping you guys could give some guidance
Every situation is different but one thing that is constant is cash is currently cheap to borrow but doesn't seem to be staying that way for much longer (Much longer is relative). But overall it depends what your plans are. I bought a beach rental and did not mind paying some of the mortgage because my family and I used it for personal reasons 3-4 months out of the year so it was OK for me to have that minimal cost. I bought a second for investment and would not buy anything that did not bring in positive cash flow because it was purely an investment. So you have to look at the numbers and ask yourself what your overall plans are. If it is to use it personally some times and then retire their some day, and now is a good time to buy, and you can cover the cost with the rental income, then use your equity with no concern. But if you want it to be a pure investment deal then you need to make a ROI that would have to be higher so you can build positive cash flow or that allows you to hold for appreciation down the road without putting a strain on your current situation. So my experience is it all depends on the end game when I am looking at propertirs which changes the expectations on numbers I need to meet before making a move. Hope that helps.
Just want to also clarify that using equity in your current home is great to purchase other properties but remember that it shouldn't add a burden you can't handle or you run the risk of losing both. Use the BP calculator and include vacancy rates, costs for PM, unexpected fixes which might be costly since you would have to hire contractors, and the unexpected issues of just not being close. Good luck.
Yes thank you David.
I would say that it would be 90% rental and 10% personal use. Also, with what I'm looking at - 1 weeks rent potential covers 1 months mortgage, so even with the other costs, there should be a decent return on investment.
You can do a cash out refinance on your property and get a fixed rate mortgage on a 30 year term. If you do an equity line of credit, the only problem is rates will only go up from here - which 10-20 years down the road could significantly increase your payment. With a fixed rate mortgage.....your payment stays roughly the same, give or take for property taxes.
Here is some info on cash out financing....
How much of your current home will you have to mortgage? What is the purchase price of the place in USVI? What is the rent in the USVI?
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