1st Rental Property Deciding on Rates and Terms

[Karen Kushner]

Hi All! I am under contract on my first STR beach property. $1 million home. 20% down. 800k Mortgage. The plan is to put the property in an LLC at the onset (I heard this was easier/better rather than putting in personal names and transferring after the fact).I was given the following rates.

• 30 year fixed: 6.875%. $5255/mo
• 15 year fixed: 6.5%. $6969/mo
• 10/1 ARM. 6.5%. $5056/mo

We currently have a 15 year fixed on our primary home as we wanted to go into retirement debt free on the primary home. However, for a rental property we may feel differently as it is an investment and not the roof over our head. In general, what is the strategy for choosing rental terms in the current market? Take as long as possible and then refinance? Or try and choose the best rate available? Our projected rental income is about 75K annually. Thank you!

[AJ Wong]

HI Karen and congratulations! I would say error on the side of caution with an STR as income can be sporadic. One strategy could be to make accelerated payments on a 20-25 or 30 year mortgage which can reduce the scheduled payments 6-7 years. Those are healthy rates for a investment property with a larger loan amount. Good luck!