real estate & accounting advice needed

[BlahBlahYouToo]

And I doubt you get 4% given that it is not completely detached single family home, you don't live in it, and if you don't have 20% plus downpayment, FHA fees and mortgage insurance can add up. Even if you could refi, my guess is your effective rate would be much closer to 5 - 5.25%.

yeah, i'm aware the rates are higher for anything that's not your primary residence.
i just like torturing myself by thinking that way. when i bought it, it was my primary.

 

[BlahBlahYouToo]

Yeah but after 15 years (I would never do a 30 year mortgage on a rental), you have 10 properties worth....$2M or more? And they're paid for and still generating revenue, but now instead of $1500 net income per month it's more like $15,000. Sure it's making a lot of assumptions but if you're a good discerning landlord, it can definitely work well.

why 15 year only on a rental?

the way i see it, monthly payments on a 30 are much lower than 15. i don't ever want to get caught in a situation where the rental is unoccupied long term and i'm stuck with higher payments.

with a lower monthly payment, i can stay afloat longer, giving me more time to find a new tenant.
plus, you can always convert that 30 into a shorter term by paying more towards the principal whenever you feel like it.

 

[mshan]

Yeah, I am kind of surprised Habib says it is supposedly only 0.25% extra for FICO 650.

For OP, a little more perspective on difference in actual after tax mortgage payment, rather than just looking at rate reduction, especially with only $150K balance:

"In fact, Gates did a little math for me on the change in your monthly payment at different interest rates, if you buy a $200,000 home (just above the national median) with 20 percent down.

4.25%: $787.10
4.5%: $810.70
4.75%: $834.64
5.0%: $858.91

"Keep in mind that difference is mainly interest which is tax deductible. So, someone paying an extra $24 a month in interest who is in a 25% tax bracket is really only paying an extra $18 a month after the tax write off of the extra interest," Gates adds. Yes, cutting the mortgage interest deduction is currently being debated as a deficit-reducer, but the proposal is to reduce the cap from $1 million to $500,000, so it's not going to affect the buyers I'm using as an example here.

The fact is that we're talking less than $100 a month, for a full percentage point increase."

http://www.cnbc.com/id/40533411/Mortgage_Rates_Are_All_in_Your_Head

Closing costs ($1500 - $2000?) is extra expense, unless you take 0.25% rate bump to finance those costs as no closing cost refi.

 

[Tweak155]

Yeah but after 15 years (I would never do a 30 year mortgage on a rental), you have 10 properties worth....$2M or more? And they're paid for and still generating revenue, but now instead of $1500 net income per month it's more like $15,000. Sure it's making a lot of assumptions but if you're a good discerning landlord, it can definitely work well.

Ah my short-sighted ways are now revealed. This makes way more sense.

 

[JulesMaximus]

i bought a rental property 3 years back, financed at 6.5% for 30 years.
it's cash flow positive, +$150/mo.

banks are unwilling to refinance, and i hate knowing that i'm paying 2.5% more than what i could be (going by today's rates), and thus could be making more per month.

i feel like paying off the principal ($150k), bringing net income to $1k per month.
but a part of me says to just leave it alone because it's already guaranteed income each month (good tenant atm, easy to rent out if he leaves), and i have money for a rainy day or another property.

one con to paying it off means that i can no longer write off the mortgage on my tax return, so that would increase my tax liability right?
am i better off just letting it sit and collect income?

I hope you aren't putting that mortgage interest on your schedule A. You should be depreciating the property and claiming your expenses on a schedule C.

 

[BlahBlahYouToo]

I hope you aren't putting that mortgage interest on your schedule A. You should be depreciating the property and claiming your expenses on a schedule C.

my accountant does my taxes. lemme check and see what he did.

he used schedule E actually.

 

[snoopdoug1]

why 15 year only on a rental?

the way i see it, monthly payments on a 30 are much lower than 15. i don't ever want to get caught in a situation where the rental is unoccupied long term and i'm stuck with higher payments.

with a lower monthly payment, i can stay afloat longer, giving me more time to find a new tenant.
plus, you can always convert that 30 into a shorter term by paying more towards the principal whenever you feel like it.

You still pay extra for having the 30 year even if you pay it off sooner just due to the amortization schedule.

If I was you, I think I'd just pay it off and take out the HE if needed.