Should I Buy This Townhouse/Rental Opportunity?

[El_Viajero]

I didn't get any responses after posting this a few days ago, so I thought I'd clean it up and make it easier to read/skim. Ahem...

I'm planning to buy a townhouse with 2 bedrooms + 1.5 bathrooms + full studio apartment in the basement (So in a sense, it's a 3 br/2.5 bath home). My family of three will live in it. We will rent out the basement studio, which has its own separate entrance. These townhouses were designed with this "live on top/rent the bottom" arrangement in mind.

Home price: $135,000
Down payment: $13,500 (10%)
PMI: $0; The first lender I met with said it will waive PMI since my credit is so good.

Here's how I'm figuring the total monthly housing costs:

Mortgage: $580.00 (per the rate given by that same lender)
Taxes: $210.00 (based on the 2014 assessment)
Insurance: $55.00 (based on the first quote I got and a $3K deductible)
HOA: $165.00
Maintenance: $113 (based on spending 1% of the sale price of the house on maintenance each year)
PMI: $0
--
$1123.00

I am confident that I can rent out the basement studio for $600 per month, possibly more. This is a university community with a robust rental market and constant demand for rentals. Assuming I keep it rented for 10 months/year on average:

$1123 - $500 = $623.00 of total monthly housing costs.

By comparison, we currently rent a 2br/1ba apartment for $806.00 per month. Excluding the basement studio, the townhouse has similar square footage but contains an extra 1/2 bathrooom.

On one hand, this seems like an all-around stellar buy, but I have some questions:

1. I would be taking around $10K from one of our ROTH IRAs to make the 10% down payment (first-time homebuyer). The rest would come from cash savings. All of our investments are in tax-advantaged accounts. Is there any reason for me to be wary of taking the money out of the ROTH?

2. I could put down 20%, but I'd be maiming our retirement accounts if I did that. All together, they're worth around $62K. Since I don't have to pay PMI, I think it benefits me more to keep the additional $13.5K in my investments than to put it in the house. Am I right?

3. Is it fair to factor in the opportunity cost of taking $10K from the ROTH? I've got everything in VTSAX at the moment. Thanks in part to lowering my monthly housing costs, I think I'll realistically be able to recoup that $10K in about a year at our current savings rate.

4. Given all of the above, is there anything I'm not considering that I definitely should consider?

[El_Viajero]

I updated this post from a few days ago. The numbers are a bit different now. I also clarified a few things that weren't adequately explained before.

Thanks in advance for your insights!

[Crazydude]

Disclosure: I'm not an expert rental property investor, but I do have two rental properties. This DOES seem like a good deal. Being an owner occupant makes it even better. In regards to taking 10K from the ROTH, I'm imagining there's a way you could compare your earnings of keeping it in the ROTH vs investing it in the property. How much $ will the 10K make you in 5 years in the ROTH vs how much will it make you invested in the property.

Is there an alternative to taking the 10K from the ROTH? How long would it take you to save up the cash?

[zephyr911]

1% for maintenance is optimistic, but living in the house can help you keep costs down, if you spot problems early before they snowball and DIY all you can.

The only big thing I don't see you looking at (and it's a big positive) is the tax aspect of this.
Depending on your income tax situation, this could be a big advantage to you. Whatever percentage of the property is used as rental, that same percentage of your interest, taxes, insurance, utilities, maintenance, and depreciation, is all deductible on a Schedule E. Note that any Schedule A itemized deductions you might claim for those categories would be reduced by the same amount, but only 2 of those 6 things are deductible on the homeowner/primary residence side to begin with.

When I did this, with pretty similar numbers but with a higher proportion of the dwelling rented out, it actually worked out to a net loss for tax purposes. You'd probably still show some income, but much less than the gross amount.