Hi everyone,
I have been on the forums for awhile doing research and I feel that it is time to get my first investment property.
I am targeting a duplex in the East Bay and my agent/loan officer has come up with some creative financing ideas that make me a little nervous, but may have merit. I was hoping to post what he is suggesting and get some feedback on whether or not this seems like a good idea.
My agent/loan officer says he can get an interest-only ARM at a 5-7 year introductory period. the numbers we were using worked out to $6000/month interest-only payments. He says that since its interest, we can write off that $6000/month and recover 33% of that based on our tax bracket, so we would get back $2000/month. he said we could request that our employer takes $2000/month less in taxes our of our paychecks, effectively reducing the monthly cost to $4000/month (plus taxes and insurance). we plan to owner-occupy one unit of the duplex and rent the other for at least $2500/month.
Since the interest-only ARM rate adjusts quarterly based on market fluctuations, this could work in our favor as interest rates are expected to come down over the next couple years. We expect the rate to come down a bit over the introductory period of the loan, or worst case scenario, rates would stay the same. I think it is unlikely that the fed will hike rates again.
The strategy would be that when rates come down organically, and before the introductory period of the loan is over, we could refinance into a 30-year fixed PITI loan at a more favorable rate than we can get right now for the same mortgage product. Our long term goal is to BRRRR this duplex. We are hoping to add some equity in the form of renovations and a few years worth of appreciation. Then we want to take a HELOC out against the home. Between the 20% we put down initially, plus equity gained, we are thinking this should be enough money to get into another property. We are hoping that rates come down enough that after we refinance we will be able to move out of the property and hopefully have rents cover PITI payments.
I realize that until we refinance, we wont be gaining any equity in the form of principal reduction, but we are okay with that for a couple years because we would still be gaining some equity in the form of appreciation and renovations.
Does anyone have any comments or feedback about this strategy? Specifically the financing aspect.
Any obvious thing that i am overlooking?
