Buying First home to Rent Out Later

[Leslie G.]

New Here to Bigger Pockets and want to get your thoughts on this.

My Wife and I are buying our first home in Houston, TX.  Both of our jobs are in the city so we are looking to buy under $400K in the Inner Loop area.  We aim to live in the house for 3-5 years and then either sell or rent out the property after that.

My question is, with our goal in mind to rent out, should I take on a 15 year or 30 year conventional mortgage?  Both fit into our budgets at this point at this price point.   How do I think about tax deductions when the property becomes  a rental? Can I still deduct Interest Payments on the home if I have bought another?

Am I missing anything else?

[Michael Ealy]

Originally posted by @Leslie G.:

New Here to Bigger Pockets and want to get your thoughts on this.

My Wife and I are buying our first home in Houston, TX.  Both of our jobs are in the city so we are looking to buy under $400K in the Inner Loop area.  We aim to live in the house for 3-5 years and then either sell or rent out the property after that.

My question is, with our goal in mind to rent out, should I take on a 15 year or 30 year conventional mortgage?  Both fit into our budgets at this point at this price point.   How do I think about tax deductions when the property becomes  a rental? Can I still deduct Interest Payments on the home if I have bought another?

Am I missing anything else?

Leslie,

If you are a saver and disciplined with money, go with 30 years, otherwise 15-year mortgage makes more sense so you're forced to save the money into equity for your house.

The difference of a 15-yr mortgage vs 30 for a $400K purchase (assuming a $320K loan and 4% interest on 15 and 4.5% interest on 30) is over $700/month. You can invest that money in the stock market (indexed to the S&P500) and assuming just a 10% return, grow that money to $54,000+ which can be a downpayment for a smaller rental property.

Regarding your question, if you convert it to a rental, you can still deduct the interest payment because that's cost of running a rental property.