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real estate & accounting advice needed

B

BlahBlahYouToo

Lifer
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?
 
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If you're +$150/mo, then your tenant is paying your interest for you. What does it matter if you're paying 2.5% more?
 
Got a TD Bank near you? They told me that they were running rentals through their mortgage department, 3.9%

Edit: Writing off interest is still a loss. Give the bank $100, save a little on taxes. Keep $100, give $25 to the Uncle and have $75 in your pocket. My .02
 
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I'd rather have $150k handy if it wasn't my place (home residence) and I'm still making out on the payments.

If I was planning on living there, this might be a different story.

EDIT:

And I never understood having rental properties when the profit is so minimal. Even 10 properties at $150 a month is only $1500 net income. The highest net income I've heard for decent properties is $400 or so. Just seems like it isn't worth the hassle dealing with other people and their money problems.
 
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I would run a scenario.

You refi your loan to get x percent. How much will it cost you to refi the loan? Subtract the cost of the refi against your net income over the course of thirty years. How much will that impact your overall net income on the house?
 
rasczak said:
If you're +$150/mo, then your tenant is paying your interest for you. What does it matter if you're paying 2.5% more?
Click to expand...

Because if he could refinance down, he'd be making more than $150/month.

OP, I'd check around more if I were you. Surely someone will refinance you -- maybe not at the lowest possible rate, but you should still find a rate lower than 6.5%.
 
IndyColtsFan said:
Because if he could refinance down, he'd be making more than $150/month.

OP, I'd check around more if I were you. Surely someone will refinance you -- maybe not at the lowest possible rate, but you should still find a rate lower than 6.5%.
Click to expand...

Nevermind. I failed at math in high school. 😀
 
Tweak155 said:
And I never understood having rental properties when the profit is so minimal. Even 10 properties at $150 a month is only $1500 net income. The highest net income I've heard for decent properties is $400 or so. Just seems like it isn't worth the hassle dealing with other people and their money problems.
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Had 2 duplexes, $700 mortgage for the both, $1400 income ASSUMING occupancy and no problems. Glad I sold them. Section 8, what a pain in the a**.
 
IndyColtsFan said:
Because if he could refinance down, he'd be making more than $150/month.

OP, I'd check around more if I were you. Surely someone will refinance you -- maybe not at the lowest possible rate, but you should still find a rate lower than 6.5%.
Click to expand...

nope, it's a co-op.
D:

so really, the question is pay it off, or just be content with $150/mo.
 
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You need 25% equity in an investment property to get any conventional or FHA loan.

Anything below 6.5% is low by historic standards.

Rule of thumb of rate reduction required is take mortgage balance and divide by $125,000 (rate reduction in NY and FL needed supposedly slightly higher because of greater closing costs).

$150K in wisely chosen mutual funds, over time, will yield much better results than paying off investment property.

Someone also said you would also need at least 30% equity in investment property if you wanted to get mortgage for home you want to live in (to prevent people from buying better cheaper home at lower mortgage rate, then strategically defaulting on previous home now turned into rental).

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%.
 
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highland145 said:
Got a TD Bank near you? They told me that they were running rentals through their mortgage department, 3.9%

Edit: Writing off interest is still a loss. Give the bank $100, save a little on taxes. Keep $100, give $25 to the Uncle and have $75 in your pocket. My .02
Click to expand...

so what you're saying is that it makes no difference to my net income.
 
Tweak155 said:
I'd rather have $150k handy if it wasn't my place (home residence) and I'm still making out on the payments.

If I was planning on living there, this might be a different story.

EDIT:

And I never understood having rental properties when the profit is so minimal. Even 10 properties at $150 a month is only $1500 net income. The highest net income I've heard for decent properties is $400 or so. Just seems like it isn't worth the hassle dealing with other people and their money problems.
Click to expand...

Remember that is just the cash flow you are getting, not the net income. You are also building equity each month as the mortgage is paid down and in a normal market the property value is increasing at about the rate of inflation.
 
Tweak155 said:
And I never understood having rental properties when the profit is so minimal. Even 10 properties at $150 a month is only $1500 net income. The highest net income I've heard for decent properties is $400 or so. Just seems like it isn't worth the hassle dealing with other people and their money problems.
Click to expand...

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.
 
"With mortgage rates at a 50-year low and banks near his Brookline, NH, home touting offers of 4% or less, Tom Rogers thought it would be a perfect time to refinance. But in spite of a solid credit score, after an exhaustive survey of lenders in the area and online, Mr. Rogers couldn't find a single one willing to give him such a rock-bottom rate. He eventually settled for a mortgage almost a full percentage point higher than what he had hoped for."
Click to expand...

"Lenders have raised their profit margins by 1.5 to 2 percentage points in the past month, according to Informa Research Services, by offering borrowers slightly higher rates.

Lenders say they haven't lowered rates further because, simply, they don't have to. The mortgage market is not the cut-throat business of years past. Most lenders are happy to make mortgages but not at any cost. And there is still plenty of demand given that rates are still historically very low. As it is, lenders are able to make loans that, while still cheap, are more profitable, says Michael Fratantoni, vice president of research and economics at the Mortgage Bankers Association, a trade organization that represents mortgage lenders."
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http://realestate.yahoo.com/promo/wheres-my-super-cheap-mortgage.html

http://www.cnbc.com/id/44878219

http://video.cnbc.com/gallery/?video=3000050857
 
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BlahBlahYouToo said:
that's not a bad idea...

if i pay it off, income goes from $150 to ~$1k per month.
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If you could do that you wouldn't be asking us the question. You can't pay it off because you don't have the money. That's obvious. You don't even have the money to pay down enough to get the equity in line to allow you to refinance so how are you going to pay it off?
 
BlahBlahYouToo said:
so what you're saying is that it makes no difference to my net income.
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Not at all. Obviously, 3.9% is way better that 6.5%. You'll net more with a lower rate (keep in mind closing costs etc).

I'd rather have no mortgage to deduct and pay tax on my $100 income instead of giving the bank $100 in interest and getting a little savings from the fed. Contrary to what a lot of finance people say, I'd rather be debt free on the house. Illogical financially sometimes but it makes me feel "safe."

Like mentioned, if you could take the $150K, put it in a fund and earn more than the interest payed, you're ahead.

Equity line on a non-owner-occupied house might be a no go.

See if there's a TD bank(or others) in your area. Ask about investment properties. 25% equity, iirc.

IIRC, OCGuy does mortgages and there are some others.
 
ponyo said:
If you could do that you wouldn't be asking us the question. You can't pay it off because you don't have the money. That's obvious. You don't even have the money to pay down enough to get the equity in line to allow you to refinance so how are you going to pay it off?
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sure pal. you don't know a thing about me so i don't know where you get off making these assumptions.

i even mentioned why i can't get refi'd and it has nothing to do with equity in the property, which is over 30% if you need to know.

i learned to never question anyone's finances when i started working at my current place. some of these guys blow more money in a night than most people make in a year.
their daily drivers are 911 turbos because of the AWD, lol.
 
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At the end of CNBC video (third link), I think he said risk premium was 0.25%, but I think he said that was for FICO 650 or above (wholesale "par" rate, with no yield spread premium, is supposedly available to those with FICO above 720/750 if all other criteria are met). Start watching video around the 3:05 point.
 
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mshan said:
At the end of CNBC video (third link), I think he said risk premium was 0.25%, but I think he said that was for FICO 650 or above (wholesale "par" rate, with no yield spread premium, is supposedly available to those with FICO above 720/750 if all other criteria are met). Start watching video around the 3:05 point.
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Thanks, watched. IMO, with no facts, he's optimistic that a 650 is only .25% premium.

Looks like the average fico is 720ish. Better than I expected.
 
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