TSP Loan for downpayment on 2nd home

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hugehail
Posts: 602
Joined: Mon Mar 12, 2012 10:05 pm

TSP Loan for downpayment on 2nd home

Post by hugehail »

My wife wants invest some of her money on a condo in south FL that we can rent out
and then use as a retirement place after retire. We can just use her money and put
25% down which is the minimum. Or I could make a loan from TSP and we together could
put 40% down. The interest rate on a TSP loan is 2.3% versus 4.25% for house loan.
I could pay myself back after a few years but I would likely have to lower my annual
contributions from 18K to 14K. The amount of the TSP loan would be about 5% of my
balance. Think this would be wise? I could definitely pay off the condo faster and have 2
places completely paid for by the time I retire. I requested annual renters so the place
would be rented 100% of the time.

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Aitrus
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Re: TSP Loan for downpayment on 2nd home

Post by Aitrus »

I've always considered condos to be a bad investment. They don't get rented out far less often than a house, and trying to recoup any damages from tenants is a nightmare.

If you're going ahead with buying one, then don't use your TSP. Don't borrow from your future to have a little fun today. If you can't pay cash for it outright, or at least 50% of the down payment, then you're not financially ready to get a condo.

Somebody should tell congress that - both Dems and Repubs have a spending problem.
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hugehail
Posts: 602
Joined: Mon Mar 12, 2012 10:05 pm

Re: TSP Loan for downpayment on 2nd home

Post by hugehail »

Well. these condos are rented annually in an area with mainly professionals so renting wont be a problem. But I think Ive decided to not use my TSP--just money my wife has in her savings account. Its just sitting in the bank now and not being invested.

Aitrus wrote:I've always considered condos to be a bad investment. They don't get rented out far less often than a house, and trying to recoup any damages from tenants is a nightmare.

If you're going ahead with buying one, then don't use your TSP. Don't borrow from your future to have a little fun today. If you can't pay cash for it outright, or at least 50% of the down payment, then you're not financially ready to get a condo.

Somebody should tell congress that - both Dems and Repubs have a spending problem.

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evilanne
Posts: 1886
Joined: Thu May 14, 2015 6:52 pm

Re: TSP Loan for downpayment on 2nd home

Post by evilanne »

hugehail wrote:Well. these condos are rented annually in an area with mainly professionals so renting wont be a problem. But I think Ive decided to not use my TSP--just money my wife has in her savings account. Its just sitting in the bank now and not being invested.
Good decision not to use TSP. Real estate can be a very profitable investment, having someone else pay off the mortgage.
Since you are planning to rent it out, you will have additional income that will be reported to the IRS. For tax purposes, you can deduct the interest, insurance, property taxes and any management fee (if applicable) that you pay plus depreciation. You may also have HOA fees plus utility costs that you will have to pay whether or not it is rented out so make sure you have an adequate emergency fund in the event it is not rented for a period of time. Just make sure you are aware of all costs before investing...best wishes.

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cswift01
Posts: 819
Joined: Thu Dec 08, 2016 10:46 am

Re: TSP Loan for downpayment on 2nd home

Post by cswift01 »

hugehail wrote:My wife wants invest some of her money on a condo in south FL that we can rent out
and then use as a retirement place after retire. We can just use her money and put
25% down which is the minimum. Or I could make a loan from TSP and we together could
put 40% down. The interest rate on a TSP loan is 2.3% versus 4.25% for house loan.
I could pay myself back after a few years but I would likely have to lower my annual
contributions from 18K to 14K. The amount of the TSP loan would be about 5% of my
balance. Think this would be wise? I could definitely pay off the condo faster and have 2
places completely paid for by the time I retire. I requested annual renters so the place
would be rented 100% of the time.


Someone can correct me on this, however, I believe that all expenses that you have in regards to going to that place to fix things or deal with administrative hurdles could be subtracted from your taxes as well.

Best,

Me

SnareMV17
Posts: 176
Joined: Thu Jan 10, 2013 9:06 am

Re: TSP Loan for downpayment on 2nd home

Post by SnareMV17 »

Better question: Why does your wife have a large sum of money just sitting in a savings account? Please tell me that it was for saving for down payment on real estate investment property and not "safe keeping".
"Get your money for nothin', and your chicks for free."

Following TSPCalc strategy #64902.

Scorpio70
Posts: 432
Joined: Thu Dec 24, 2015 11:49 am

Re: TSP Loan for downpayment on 2nd home

Post by Scorpio70 »

The issue with borrowing from the TSP is opportunity cost. You can never recoup that amount. I would never rent out a property I cannot physically visit easily. Once you do rent it out there is a likelihood it will suffer damage. Condo fees are an investment Killer.

acteg
Posts: 4
Joined: Thu Jan 26, 2017 1:00 pm

Re: TSP Loan for downpayment on 2nd home

Post by acteg »

Condos in s. Fl are overpriced right now. I've been looking at condo/townhouse on the water for awhile and you can barely break even on most of them after HOA fees. I'm still looking but will likely hold out for a distressed property so that I can pick something up at a historically average price instead of overpriced. I'll do the rehab work myself to minimize the rehab costs.

Regarding ability to rent. It's very area specific. I've been a landlord for 7 years now. I've never had a unit vacant for more than 5 days in that period of time, but my units are also in prime areas where young professionals want to rent. The price of admission is typically higher for these type of properties but I bought them in 2010 at historical lows ( watched the market and weighted 5 years to buy).

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