15 vs 30 yr Primary residence

[Daniella Ortiz]

HI

I am getting ready to buy my first home.  I plan on having roommates.  Was wondering how much an extra bedroom is worth in terms of resale value?  For example, there is a 3bed house for 245k vs a 4 bed for 310k.  Which is better?

Not sure what the future will bring...my plan is to rent this house out after I purchase my next home..but I might end up selling this house within 5-10 years.  If I sell it within 5 years, does it make more sense to get a 30 yr mortgage (lower payment) or get a 15 yr (more toward principal).

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[Jerry W.]

@Daniella Ortiz, I would suggest you run the numbers.  What will you be able to rent out each room for and how much more rent will you get for the extra cost of a bigger house when you do a cash flow analysis?  I have always been a huge advocate for 15 year mortgages but that is not the right choice for you right now.  Go with a 30 year loan.  I will also advocate to put 20% down.  I know that you can keep some of your cash to try to buy another property but truth is you will probably not qualify.  Also if you have less than 80% equity you will probably have to pay mortgage insurance payments every month that will eat up your profit margin, your mortgage payments will also be lower making you more cash flow.  Lets a fast analysis with made up numbers.

Buy house $245K on 30 year loan with 20% down at 4% interest.

Monthly payment $936 per month.

Add $250 per month taxes, $150 insurance, $120 per month for maintenance and $60 for Cap ex costs, and utilities are $400, you 5% vacancy for 90$.

Total cost per month is $2,006 per month

You rent 3 rooms for $600 each for $1,800 total income.  You lose $206 per month

I have no idea if these numbers are close but get your own and plug them in.  Now lets try a 5% down payment on a 15 year note at 4% interest.

Monthly payment $1722

All of your other costs are going to be the same except you have $150 per month for mortgage insurance until you have 80% equity.  Total monthly payment with all expenses is now $2942.  You now lose $1142 per month.

Maybe you can $800 per room maybe only $500.  You need to study the market and sit down and run real numbers.  Look up what the taxes are on this place, call for a quote on insurance, ask your banker how much mortgage insurance is on a $233,000 loan.  Look online and in the paper for how much rooms are running per month in the area you want to invest in.  Your ideas are neat, but without the math you are going to have HUGE problems.  I have not thrown in other things like the cost of getting the house ready to rent, legal fees, accountant fees for filing taxes, advertising fees, costs of furnishing the house with beds, TV, maybe even cook ware or appliances, and regular furniture.  Think and plan accordingly.  Good luck, you are in a great place to invest but do it wisely.