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?
High Growth Is a good thing. it means rents will be going up
In terms of your Closing Costs what price properties are you dealing with. Typically Closing costs are between 2 to 4% of the purchase price.
Property investments along with the income you make from your job may be a better question for your accountant to answer.
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?
If the lender allows it, and your property will still generate a positive cash flow, i would prefer to conserve cash, roll the closing costs into the mortgage loan, and then let my tenants pay off the loan.
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