Financing question

[Sam H.]

Hi everyone.  I'd appreciate your help and guidance here.  I am considering a couple of properties and will be financing them conventionally with 25% down payment.  I plan to rent them out.  My questions is this.

Should I bundle the closing costs into the loan and deduct the monthly payment as an expense to the future rentals?  Or should I pay the closing costs at closing and amortize them?  

Does it matter that I am in a high growth market where property values are going up?

Thank you.

[Eric Black]

Hi Sam,

Overall this is a matter of opinion. Paying the closing costs out of pocket will immediately reduce the amount of capital you have on-hand. 

When buying a $200,000 house, if closing costs are 4% and you pay them at closing then that's $8,000 you no longer have available. On that same property with a 75% mortgage at 5%, rolling that $8,000 into the loan will result in a payment increase of about $43 per month. Would you rather have the $8,000 to use for something else or $43 per month less cash flow on the property?