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Subject:  Re: Balancing debt vs Investing Date:  12/29/2012  2:44 PM
Author:  Fuskie Number:  306558 of 312970

Beach homes can be expensive when you consider flood insurance and the risk of hurricanes affecting homeowners insurance, not even taking into account the home maintenance costs of keeping your home in good shape in a humid, salty environment. Speaking of environment, you have to take into account the potential for erosion taking your land and even your house (depending on location). Beach front properties can also be very expensive just to purchase.

I think your first priority should be to pay off the remaining $10k on the 7% student loan. After that, whether you should refinance or not depends in part on the terms of your current loan. If you are near the end of the fixed portion of an adjustable rate loan and facing a rate increase, or are at the beginning of a loan where you will save on the interest over time, a refinance may be good. But if you are near the end of a fixed rate loan in which you have already paid the interest and are now paying largely principal, a refinance may not save you much money.

Similarly, you have to consider the terms of the new loan. If it is an adjustable rate loan, will you be selling or prepared to refinance before the end of the fixed term before the rate becomes variable? If it is a fixed rate loan, are you prepared to extend your terms another 30 years? Are there any points or closing costs that will increase the long term costs of the loan?

Back to the beach house, are you prepared to manage this property directly, or are you going to hire a management company? Have you researched what other beach houses are leasing out at in the current market and would that be enough to cover your monthly expenses, including property tax, grounds keeping, house cleaning, etc? Your customers would most likely be short term renters, so having a local management presence to perform credit and background checks and keep an eye on renters and address issues quickly might also be an issue.

Who cautions, if you were planning to buy a beach front foreclosure property, to make sure of the condition of the property or your maintenance expenses could explode...
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