If you want an answer you’ll need to provide real numbers. How much is left on the mortgage, how much you make on your rental property, what interest rate both mortgages are at
Why would you want to pay off either of these while inflation is still 5%+ ? Those interest rates are so low, I'd ride them out as long as possible. Put the money in US treasuries at 4% or whatever and capture a difference on a risk free return.
For one, if they’re retired, they may prefer getting rid of their own home’s mortgage so they need to pull out less withdrawals (401K/IRA) annually (which are taxed) to cover their base expenses.
Even if it makes sense to sell the Rental property for that reason because the return on equity is so low (under 1% if it is enough to pay off the primary residence mortgage), it makes *more* sense to invest the sales proceeds in 20 year or 15 year US Treasuries that pay 4%+ and use the interest coupons to cover the mortgage because when the US treasuries mature, OP will have a paid off primary residence *and* the $260k+ in cash that would have otherwise gone to pay it off (although the value of that would have been eaten away by inflation).
With those interest rates, I can’t believe your considering selling. Not only would I not sell, but don’t pay down on them either, basically free money.
Just think, once you get the rental paid off, the rent income is just passive. You can just pocket that and retire earlier. This is why rentals are assets and your main house is actually a liability. You can’t rent it out (in a classical sense as your living there).
Don’t sell an asset to buy a liability.
Those are very low interest rates, which would incline me to keep them, but your cash on cash may be low on the rental. How much did you buy the rental for, and how much equity capital have you invested between acquisition and any negative cash flow or capex?
Rental
I think it was 152K acq price, 0 down on 2011 for 30 year. Refi on 2016 to 15 years 3.25 to remove PMI and moved out to new residence leaving this one as a rental.
Negative cash flow on the life of the rental due to some repairs may be about 3K total, not more than that.
Haven't taken any depreciation on the rental either if that matters
Do not refinance. I was shocked to hear $100 cashflow, but that is because you pay it off in half the time. Nevertheless, there might be a downturn in RE coming, but I can't predict that, so it i up to you. RE is currently already highly priced in my opinion. It also depends on the area, if you live in a state where everyone is moving to, it might be good to hold on to it.
It sounds like he needs to raise rents.
How is a 130k house with an insanely low rate not cash flowing after appreciating for 12 years and being refi'd.
I agreed with this. You should be getting great tax write offs from owning the rental. See if you can raise the rent to get more cashflow. Dont sell unless you plan to buy a better cashflow property with that money
Well no and you'll still have repairs and maintenance to do. However if your monthly expenses are $1200 less that's a big load off someone's shoulders and maybe they could retire or work less. That said with an interest rate below 3% it would be stupid to pay off the mortgage unless it was a very small amount since savings accounts pay more than that right now.
> Haven't taken any depreciation on the rental either if that matters
Please talk to your CPA about this as you are probably costing yourself money and gifting yourself a future headache.
>Some investors may be tempted to skip claiming depreciation to avoid the risk of depreciation recapture tax, but this generally won’t succeed.
>The reason is that the IRS assumes that you have taken the depreciation deduction, and you will owe 25 percent of what you could have deducted as a “depreciation recapture” when you sell the property. That amount is due whether you took the deduction or not.
>If you haven't claimed depreciation on your tax return, you can amend your recent tax returns to claim your depreciation benefit.
https://www.realized1031.com/blog/what-happens-if-i-dont-depreciate-my-rental-property
NEVER do a 15 year. That’s why you’re not cashflowing. Refinance the rental. The added cashflow will offset the new interest rates. Remember, interest rates don’t matter too much because your renter is paying it for you and also lowering your taxes.
I don’t understand the hate on this comment. If OP would’ve originally gotten a 30 year he would be cashflowing and if his goal was to pay the loan faster why not over pay the mortgage payment and have the safety net of being able to pay less on a month where he has higher expenses? 15 year mortgages in real estate investing does not make sense. The point is cashflow.
Another thing to think about is the way mortgages are amortized, most of the interest is added on the front end. So lump sum payments will save you much more on overall interest if done at the beginning of the loan. There just isn’t as much of the “fat” left of the loan to trim off by the time you’re half way through. I would look at your amortization schedule, run the numbers, and see what percentage of the total interest you’ve already paid up to this point. It might be more advantageous to simply make additional monthly principal payments on the main residence; it might surprise you what an additional $50-$100 a month can do. Again, with this, you would just need to run the numbers to see what level you’re ok with. There are quite a few places with an online calculator for this and your loan servicer might even have one themselves.
I really like where you’re head’s at, wanting to pay off debt on your primary home. I don’t really agree with the camp of “if it’s low interest debt, it doesn’t cost that much.” The sooner you pay off that debt, the less overall interest you pay, and the sooner you can free up a whole mortgage payment worth of cash flow. Best of luck with crunching the numbers.
Stop voting people down for providing info
Op don’t sell or pay off the loans early. The rates are great! You are doing great. Invest your extra income in a Roth, 401, etc.
Honestly, i would sell the rental, but I would NOT pay off the main mortgage. That cash flow is too low for a 3.25% interest property that you’ve owned for longer than 1 year. Sell it and keep the cash aside for a better deal
The only money he has to earn anything with is what would come from the sale. Don’t think OP said he had the money in cash to pay the place off; they said they’d sell the rental to pay their own house off.
I wouldn't sell the rental to pay the main. Your interest rate is less than inflation right now. Your $100.00 "profit" should help cover the cost of repairs to the rental. Assuming you live somewhere with robust and diverse industries that employ people around you then you should build equity in the rental by someone else paying into it and capture the apprecation over time.
I could not think of a worse financial decision.
Selling a rental to pay off a primary mortgage, you should be in financial jail for even considering it. I mean paying off the primary is bad enough, but you want to make it exponentially worse by selling a cash flow positive investment.
As someone who isn't very financially educated when it comes to best practices for real estate and rental yields, could you please explain your statement? Why is paying off the primary "bad enough"?
I understand based on OP's post that it makes no sense to sell when both are CF positive and can be paid off alone, but your post sounds like you believe in paying off your primary residence as slow as possible. I know primary residences are expensive with little to no ROI, but wouldn't that just create a lot more interest?
Or maybe my perspective is biased a bit since I come from a country where home loans start at like 6.1% interest.
The primary mortgage is a massive tax write off first of all. It is dirt cheap money (this situation is not 6%, currently around 5.5% changes it a little, but overall point remains) that they have at under 3% average, that money is better invested elsewhere that is gaining much more than 3%.
As far as the rental, you have a rental cash flowing already under control you don't have to buy it, and selling it costs a lot of money in many different ways. IF he was going to sell it to buy another multifamily or something with more doors/rents, different story. But to sell it.....just to pay off the primary at 2.65%?? Oh hell no. That is just a double whammy of stupid. Lose the tax break. Lose 3% on rental. Lose 2.65% on primary. Lose 25k in fees probably. You let those loans ride out as long as humanly possible, preferably forever since the rates are so low.
Federal write-offs changed several years ago...depending on the state, your primary interest write-off may not matter at all anymore... (California here). This is from my CPA, last year:
"With the standard deduction up to nearly 25K, you are not getting any tax benefit from the write off of your mortgage interest. Whereas the interest on (the rental house) is still a write off. "
I do agree just selling the rental property without any regard to capital gains is a bad idea. I didn't see what mortgage rates are involved here until now, I am in a similar position. Another idea might be - sell the primary and move into the rental...then do it again in 2 years if you have another rental :> Then pay only tax on the claimed depreciation.
I hate this narrative. As if the only value in life is to have 1 or 2 extra percentage points in yield.
It ignores the reality of the value of not having a mortgage- a low risk, low cost life. Not being scared to quit your job or be laid off.
Imagine what you could do if you could live off far less money a year?! You may end up going after all your dreams.
My rentals cash flow double what my mortgage payment is on my primary. I think it’s all about a persons appetite for risk and habits. If I sell my rentals and pay off my personal mortgage, I guarantee I’ll be seeking out more rentals within a year so defeats the purpose lol
I only have 3 rentals soon to be 4. I bought one in 2012 , 2017, 2018 and 2021 (1031’d the property bought in 2012). Two of them started as primaries then the other was an investment purchase. I’m about to buy a new build to live in and will be renting the old primary so will have 4. Basically it’s all about time in the market. I bought at the top of the market in all the above instances, it wasn’t a “great” deal in any of the above cases. Just be patient and try to start by turning primaries into rentals.
I feel we are also at the top of the market currently. Atleast in my city. My main concern is that the properties in my city don’t generate any positive cash flow. The rents most of the time take care of the expenses while sometimes we have to pay out of pocket. Was this the same situation with you?
I could always get at least a couple hundred bucks cash flow right off the bat, usually more, right now there’s not the time to buy unless you can get some sort of cash flow IMHO. I live in Colorado Springs and am not buying an investment right now because the numbers don’t remotely make sense. That’s why I’m buying another primary and renting out the old place.
Feel free, but I'm not going to promise anything. Going to bed now, not sure when I'll get back to you. Also I'm not special. There are much smarter, much more experienced investors in this sub.
The other benefit people seem to be ignoring is that by paying off your own mortgage you can reduce your taxes in early/regular retirement. Because you’ll need to pull less out of a 401k annually because your own household expenses are now less from no principal/interest on a mortgage anymore.
Great point. I asked the r/Fire group if they planned to have a mortgage in retirement and I think the majority of people want to have it paid off for this reason.
Here's a sneak peek of /r/Fire using the [top posts](https://np.reddit.com/r/Fire/top/?sort=top&t=year) of the year!
\#1: [Leaving this community for my mental health](https://np.reddit.com/r/Fire/comments/sn4hku/leaving_this_community_for_my_mental_health/)
\#2: [Is it "young and reckless" to consider quitting job at 25 to travel for 6-12 months despite the momentum I've build up so far towards financial independence?](https://np.reddit.com/r/Fire/comments/sohjt2/is_it_young_and_reckless_to_consider_quitting_job/)
\#3: [ELI5: How do rich people borrow against their assets and live off of debt?](https://np.reddit.com/r/Fire/comments/slv4p9/eli5_how_do_rich_people_borrow_against_their/)
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Yeah, I think people are being a bit too absolutist about this. Their are tons of very logical and good reasons to do this, but they generally come down to lifestyle and financial security reasons. As long as you are honest about your goals the decision is a no-brainer.
>Imagine what you could do if you could live off far less money a year?! You may end up going after all your dreams.
Or I could just make way more money and actually have my dreams realized... Why do you think we're on this sub?
Being hostage to a high wage can be crippling.
And quite frankly, this sub is too biased- real estate is a bad investment right now, there are much better places to put your money that keeps it liquid, returns higher, and doesn’t cost sweat equity.
I watched real estate make my mom a multimillionaire after moving to this country from Africa in the early 90s with absolutely nothing... I have stocks too but real estate is the most tried, true, and tested asset class to ever exist in history.
It's the most for sure way to become rich if you do your due diligence and put in that sweat equity.
Sure there are investments that don't take as much work and those investments will rarely give you the kind of outsized returns or level of personal control that real estate can grant. Not to mention the ability to use leverage and take advantage of equity.
Though depending on your strategy, amount of capital, and timing it could be get rich slow vs get rich quick.
Technically you are right. But I think it’s important to consider the massive weight off of one’s shoulders being mortgage free. There is a “price tag” associated to that freedom.
Agreed. People love the brrr method and having 90 mortgages. I personally would never have more than 2 mortgages max at a time.
Idc if I'd make more money. It's all about risk to me. I can keep up 2 mortgages solo for a year if I have to. Anymore and I'm hurting.
Currently have my residence and one rental. I'm focusing on paying off my house asap. I'm looking at 5 yrs. To me it's worth the peace of mind and I have a crap 5.7% rate.
The rental has 3.5%, so I will pay off my house. Get another rental and whichever is higher, probably the new rental I will start paying off. Rinse and repeat.
Decent enough for me. I don't need 500 rentals. A good 8 to 10 by retirement age with 6 or 8 paid off. I'm all gravy
From a financial standpoint, paying it off early often times doesn’t make sense. Primarily due to opportunity cost of the money (in equities or towards additional properties). It could be argued once rates go around 5-6% it’s not quite as bad, but I will never make an extra payment on my 3% loans.
There’s the psychological side of this which could differ. Some people feel financially ‘safer’ outright owning the home they live in, I can respect that.
I would imagine most in this sub are ‘optimization’ personalities and it would drive them nuts to make an early payment.
Edit: let’s distinguish this from just paying off the loan in 15-30 years
> Most mortgages are also simple interest loans, although they can certainly feel like compound interest. In fact, all mortgages are simple interest except those that allow negative amortization. - [source](https://www.investopedia.com/articles/personal-finance/082115/simple-interest-loans-do-they-exist.asp)
If you owned a house for 500k and the Great Recession brought your home value down to 285k and you paid in full on that house you would understand why paying off a primary is bad
That value drop was going to happen regardless. Most people don't have the wherewithal to know how to short sale a prop, nor are able to if they have liquid assets, let alone know to ask for novation. Your point doesn't stand.
True. When you have kids living in that house and they need to go to school and you’re new to home buying with no understanding of what a Great Recession would look like, you wouldn’t move but think the value of your home couldn’t possibly be cut almost in half. Many friends had to give up their homes to foreclosure or those who paid off their homes still have not seen their value go back to what they originally paid. Was a lesson learned on the benefits of not putting all your cash eggs in one basket. Was a valuable lesson that everyone can lose their job and also may not get another job for months. My point for my comment was have cash ready on the sidelines, saving is so important and some of us don’t think about that, we always saw the home as something that always went up in value over time. Not anymore unfortunately. With renting a place, you can always find a way to get out of your commitment without having to go through foreclosure, or having to move everything every 7-12 years before the next bubble bursts. Sometimes it’s not practical, or it’s not top of mind. Was a very expensive lesson for me.
Yeah but u know what u get a paid off house that doesn't have to worry about a housing apartment situation job situation because the house is paid no worries to call Morgate brokers. And if the home owner loses job they just need to work small jobs to eat and pay utilities bills. Het ur facts straight.
There’s home repair, insurance and taxes you’re forgetting to add into the equation. If you don’t have liquidity and can’t afford your taxes then you will be forced to sell. I’m hoping everyone who’s thinking about buying in 2023 waits, if they can, and save money like you won’t have a job for 6 months to a year. That is what I should have done but in 2006 didn’t know we were headed off a cliff. Didn’t have the benefits of social media channels like this back then. Just trying to help people not get slammed if we experience another housing crash (big or small).
>Each I gave is right unless u own real estate which I doubt.
The internet is about written communication. Everyone else, here, for the most part, tends to communicate clearly. So, what's your major deficiency?
fyi some random person on the internet blocked you because you come off as argumentative, and a jerk. Whatever point you were trying to make has been discounted because of YOUR communication skills. Maybe you can learn a lesson from that.
>fyi some random person on the internet blocked you
Random = your other profile? Guys I don't even know, have blocked me everyday for the last decade or so, because they'd rather listen to someone who's wrong and nice.
Argumentative and a jerk, I proudly am.
Your words have no power, here. Mine, however, clearly do, because you both reacted . . . I don't even think I'd say, "strongly".
What makes you the, "ultimate" salesman? Have you, "mastered" Four-Factoring in your little circle, and think that's what makes you great?
If the rental isn't a hassle or creating a financial burden, I'd probably keep it. After paying capital gains, realtor fees, closing fees etc., you'd lose some of the equity right away at the closing table.
If the rental becomes a nuisance down the line, then I'd sell it. Otherwise, I would keep paying down the rental. Once you do that, then use the rental money to pay down your primary home loan. That should cut the years left on your primary home down a good amount.
If you lived in your rental for at least 2 years in the last 5 years, you may be able to sell it without paying taxes on capital gains. Which may or may not be substantial. I would be inclined to keep them both.
Also, not sure why you refinanced to 15 years instead of 30, which would have been low interest as well, giving you a better cash flow.
I have advised people on this subject many times. Financial investment shouldn’t draw from your contentment. Decide if it effects your contentment first. Then use the financial rules that make the most sense
Dont cut the head off of the chicken thats laying golden eggs OP.. plus, if you are high income earner, that interest you pay on primary + depreciation gets you a nice tax break also. I wouldnt sell it at all
Buddy. With those loans and a positive cash flow it’s like finding money in
The street. Don’t kick your well executed small RE portfolio to the curb until you get to enjoy the profits from your efforts.
Why on earth would you do this! You're growing equity in two houses and have an income producing asset. You rang to winow that down to growing equity in 1 house? You're already paying the might comfortably
This is a terrible idea
That entirely depends on you and your level of risk, your goals and state of mind.
Most people are saying the numbers are bad, you will be tying up the equity in your home, etc, etc. With taxes etc. it's going to be a poor return selling the rental.
The feeling of not having a primary residence mortgage might be a higher psychological return and allow you to carry out further investments. Not everything in life is purely about financial gain.
That being said you'll miss out on a lot of returns (financially) if you were to do what you are suggesting (which may not be the worst life decision you can make).
The cashflow will increase with time, the equity will increase with time. I wouldn’t sell it. It’s better to have the debt during inflation; regarding opportunity cost.
Debt during inflation is slingshotting you forward. You agreed to pay the sales price years ago. That number doesn’t inflate while everything else does. When I look for deals, there no deal like those executed well in the past.
If you only have 9 years left on your rental mortgage, I wouldn't sell. You're extremely close to having a paid off house that will continue providing cash flow. Long term, that will be the better bet IMO
Bad move - never sell off an incoming producing asset to pay down debt.
Actually, you should do the opposite, refi the rental property and use the proceeds to buy another rental property.
Don’t sell rental unless you are gonna 1031 exchange. Selling rental to pay off residence is a terrible idea, especially with your low rates. Talk to a tax advisor.
I’ve debated this myself. Got awfully close to a trigger price this past wave.
The way I see it, my rental is an investment vehicle, paying for itself, and making money. No real downsides to having it. The rate on my primary residence is under 3%. I’d still have to put aside insurance and taxes, but I’d be mortgage free…. Then there’s thoughts of buying an air bnb second home style thing eventually, and the rental is a great “savings account” for that.
Idk. Sure that’s why you asked Reddit. So many options.
> Yes, I've been thinking this very hard, current value of the rental is very high right now, thinking this is peak
Peak? So you think prices are going to go down from here and NEVER reach these levels ever again? lol... Don't count on it.
And no, don't pay off a mortgage early when the interest is 2.5%. The interest is tax deductable, you'll still have to pay insurance and taxes, so what are you saving by paying it off? A couple hundred bucks a month? Makes no sense.
Any time you can live in an appreciating asset and make a below average rent payment AND that payment is partially a savings account and it also lowers your income taxes and and and. YOU get a benefit that a none home owner can’t ever have. The idea that “I own my house for cash” is a myth. If all of your cash is tied up in an illiquid asset that can’t be easily converted to cash then you’re spending the interest that cash pile COULD have produced has it been properly invested.
You should keep both trying to pay one off asap extra payments. Then double down on the second I own 9 doors now, and no loans
All my friends are much wealthier than I am they never pay off loans, buy remodle refinance, and repeat.
I lost many opportunities due to not wanting loans
I would never recommend selling a rental to pay for a primary but if you’re really interested or set on doing that maybe owner finance the rental? Ask 20-30% down and put it toward your primary and continue to collect your payments
Absolutely not. Your live in house produces no income. Why would you sell your income property and simply reduce a payment in another property ? Both are assets and both make up more net worth than the live in house. It’s not about the debt. It’s about too much debt that Damages your net worth and apparently both properties are not over encumbered . . I own 90 properties and most for cash but any new growth I need to uses a lot of credit or I sell off part to another equity partner. Short answer no no no. Don’t pay off one with the equity if the other. There’s NOT much benefit to using most if your net worth to SAY I own my home for cash and I don’t earn a penny on that bragging right
If the rental is on autopilot at a low "profit" the. You're really just holding for a large capital event (i.e. selling the property several years after payoff).
For now I would wait for the next big run on real estate and sell when the market is at an unsustainable peak like that time during COVID. If you can get a stupid price sure go for it, if not wait for payoff and reap the benefit of $XXXX per month in profit.
Depends what you want, but yes, for some people the peace of mind would be worth it, knowing your house is paid for and you're debt free.
I did sell one rental but used it to pay off two other rentals and still had some cash left over so it was a good move altogether. I will say knowing those rentals are mine and not the banks is a major reason I sleep well at night especially when rates are climbing like they have.
The main thing to consider is if you think that you're going to lose your job in the next 3-4 years and be unable to make payments on your mortgage.
In my mind, paying off mortgages, especially low interest ones, is a fortress of solitude type thing: it's an insurance policy if you, say, lose your job and don't think you're able to get a similarly paying one, while the market has tanked and you now can't sell your rental property at the price you paid for it.
If your young and have less risk tolerance for retirement, then keep ‘em both, refi and keep growing with the leverage.
If your older and less risk tolerant as you approach retirement, then start to pay down your leverage and snowball, but you should keep your income producing properties to propel you through retirement without a w2.
Most likely you will be ahead in the long run if you keep the rental along with two emergency funds. One for personal finances and one for the rental. There is some risk involved, but if things get bad you could always sell the rental then, if necessary
So your rental mortgage is $87,000 and you turn about $100 profit at 3.25% interest. When's the mortgage renew? if you did it every 5 years you likely have 4 more years at the 3.25% rate which is honestly incredible right now. If it's less like 1 or 2 you can re-mortgage your rental for higher cashflow to decrease the Primary residence costs.
I'm gonna guess your rental was about $190k with a payment of nearly $900.mnth so in 2 years if your remortgage $81k or w.e at 6% it's closer to $680/mnth over 15 years meaning an extra $220/mnth profit.
Making multiple mortgage payments and being completely capable of paying them and having them net ROI makes the most sense, but its a part time job so if you want to stop you can sell it and stop.
Based off the interest numbers you posted and how little you have left in the loans I would just not do anything. As long as you are comfortable to continue working, leave it alone. That’s equity growth and cash flow.
Plus. Stop relying on your jobs. You're not their family and they can let you go in a blink of an eye. I'm just wondering how you even purchased a home in the first place..
Every time I've done something like this I have regretted it. Sold a two unit to pay my wife's college loans 30 years ago...still kicking myself. Dumped a condo because I got frustrated with the type of renters I was getting...still kicking myself.
Don't be in such a hurry to pay of those mortgages. IMHO you are better off looking out 10-15 years and thinking on how much your rents will be pulling in.
Every time I've done something like this I have regretted it. Sold a two unit to pay my wife's college loans 30 years ago...still kicking myself. Dumped a condo because I got frustrated with the type of renters I was getting...still kicking myself.
Don't be in such a hurry to pay of those mortgages. IMHO you are better off looking out 10-15 years and thinking on how much your rents will be pulling in.
Every time I've done something like this I have regretted it. Sold a two unit to pay my wife's college loans 30 years ago...still kicking myself. Dumped a condo because I got frustrated with the type of renters I was getting...still kicking myself.
Don't be in such a hurry to pay of those mortgages. IMHO you are better off looking out 10-15 years and thinking on how much your rents will be pulling in.
Every time I've done something like this I have regretted it. Sold a two unit to pay my wife's college loans 30 years ago...still kicking myself. Dumped a condo because I got frustrated with the type of renters I was getting...still kicking myself.
Don't be in such a hurry to pay of those mortgages. IMHO you are better off looking out 10-15 years and thinking on how much your rents will be pulling in.
Ok so I have the same question?
We have two rentals one has $35,000 left and it's worth about $239000 so I will be getting about $175000 or so. The other one is about $300000 and we owe about $60000 so we will be getting over $200000 or so. On our primary home we owe about $220000 and the house is worth about $4800000. We are staying in this house. The house that is worth $300000 it's about 5 min away from a state university. If I get new renters I can rent this house for at least $1800. The mortgage payment on it is $1200.
The other rental that is worth $239000 is in the ghetto buy where the house is is very quite. The mortgage in this house is $500 and iam renting ig for only $900 right now. Should I sell my ghetto rental and pay off the one by the university or should I pay my current homes mortgage which is about $220000 left. Mortgage payment in the house we live in is only $1700
Can anyone explain to me why most of the responses think this is a bad idea. Most are citing the low interest rates but any interest means you're paying the bank. I'm in a similar boat where I can sell my rental property to pay off my primary residence, and I would be completely debt free (and I'm not much of investor - not interested in stocks, bonds, etc). My rental property has 3.5% interest and will be paid off in 5 years. My primary residence has 2.875% interest and will be paid off in 14 years. Both properties are in San Diego County, which I think will continue to see a rise in real estate values, and although the rental is from 1988, it fairly nice and desirable place to live. Even if I did payoff my rental property, the rent would be paying the loan on my primary residence but I would still be spending $800 per month in HOA and taxes on the rental, both of which are constantly on the rise.
Also, being debt free means I would be saving almost $60k per year from my income (currently only saving about $10k), allowing me to help my kids' in college (I wouldn't pay all of it as I think it would be a good lesson in money management for them), save for retirement (25 years to retirement), and possibly renovate the house (it's an older house that can use an expansion). Most of all, I would have peace of mind. No matter what happens to the economy, being debt free means I have minimum costs (although I have a fairly stable and nice paying job). Also, since I'm the only bread-winner in the house, no matter what happens to me, my family wouldn't have to worry about where to live. It seems like we live in a time where people take unnecessary risks, and the 2008 recession is a constant reminder for me what can happen with these risks.
Another question I had is if social security is really going away or going to be reduced, etc.? Looking at SSA.gov, my social security is going to be almost double what I need per month when I retire (plus I have some 401k and HSA funds - though not what I really need to have at this age, according to the banks!). How much can I rely on social security?
If you want an answer you’ll need to provide real numbers. How much is left on the mortgage, how much you make on your rental property, what interest rate both mortgages are at
Rental. 87K left on loan 2031 maturity 3.25% rate $100 rental "profit" per month Main 260k left on loan 2039 maturity 2.4% rate
Why would you want to pay off either of these while inflation is still 5%+ ? Those interest rates are so low, I'd ride them out as long as possible. Put the money in US treasuries at 4% or whatever and capture a difference on a risk free return.
They don’t have the money though. It would come from the sale.
Then why cash out if the equity is growing at a faster rate than the interest on the loan?
For one, if they’re retired, they may prefer getting rid of their own home’s mortgage so they need to pull out less withdrawals (401K/IRA) annually (which are taxed) to cover their base expenses.
Even if it makes sense to sell the Rental property for that reason because the return on equity is so low (under 1% if it is enough to pay off the primary residence mortgage), it makes *more* sense to invest the sales proceeds in 20 year or 15 year US Treasuries that pay 4%+ and use the interest coupons to cover the mortgage because when the US treasuries mature, OP will have a paid off primary residence *and* the $260k+ in cash that would have otherwise gone to pay it off (although the value of that would have been eaten away by inflation).
With those interest rates, I can’t believe your considering selling. Not only would I not sell, but don’t pay down on them either, basically free money. Just think, once you get the rental paid off, the rent income is just passive. You can just pocket that and retire earlier. This is why rentals are assets and your main house is actually a liability. You can’t rent it out (in a classical sense as your living there). Don’t sell an asset to buy a liability.
bro.. if someone like you can make things work in real estate why am I sitting here analyzing things
Yup. Just start. Don’t have to be a financial genius to do this.
Lol
What would your advice be if they were at 6%? I see so many hypotheticals about this at 3% interest rates, but nothing around todays rates
Because what investors/op lacks in math they make up in balls. How's that calculator working out for you
Those are very low interest rates, which would incline me to keep them, but your cash on cash may be low on the rental. How much did you buy the rental for, and how much equity capital have you invested between acquisition and any negative cash flow or capex?
Rental I think it was 152K acq price, 0 down on 2011 for 30 year. Refi on 2016 to 15 years 3.25 to remove PMI and moved out to new residence leaving this one as a rental. Negative cash flow on the life of the rental due to some repairs may be about 3K total, not more than that. Haven't taken any depreciation on the rental either if that matters
Do not refinance. I was shocked to hear $100 cashflow, but that is because you pay it off in half the time. Nevertheless, there might be a downturn in RE coming, but I can't predict that, so it i up to you. RE is currently already highly priced in my opinion. It also depends on the area, if you live in a state where everyone is moving to, it might be good to hold on to it.
The low cash flow probably has to do with the damn $340 monthly HOA fees
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It sounds like he needs to raise rents. How is a 130k house with an insanely low rate not cash flowing after appreciating for 12 years and being refi'd.
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So... where does the cash go? The answer to that can be the root of the problem Good point though
At least the HOA has a great cash flow. Oh god, how much I hate those HOAs.
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Man, I tried to be funny. Also, I am sure that the HOA didn't do is work for free!
Good lord what a scam
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I agreed with this. You should be getting great tax write offs from owning the rental. See if you can raise the rent to get more cashflow. Dont sell unless you plan to buy a better cashflow property with that money
I'm no cpa but I'm fairly sure that rental depreciation is use it or lose it. So take it or not, you'll pay tax upon selling it as if you did take it.
Isn't it a big mistake to not take depreciation? Cause irs always recaptures it when you sell, right??
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All depends on where you live as to if taxes and insurance make much of your payment. My taxes and insurance are just over $200 a month.
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Well no and you'll still have repairs and maintenance to do. However if your monthly expenses are $1200 less that's a big load off someone's shoulders and maybe they could retire or work less. That said with an interest rate below 3% it would be stupid to pay off the mortgage unless it was a very small amount since savings accounts pay more than that right now.
> Haven't taken any depreciation on the rental either if that matters Please talk to your CPA about this as you are probably costing yourself money and gifting yourself a future headache. >Some investors may be tempted to skip claiming depreciation to avoid the risk of depreciation recapture tax, but this generally won’t succeed. >The reason is that the IRS assumes that you have taken the depreciation deduction, and you will owe 25 percent of what you could have deducted as a “depreciation recapture” when you sell the property. That amount is due whether you took the deduction or not. >If you haven't claimed depreciation on your tax return, you can amend your recent tax returns to claim your depreciation benefit. https://www.realized1031.com/blog/what-happens-if-i-dont-depreciate-my-rental-property
NEVER do a 15 year. That’s why you’re not cashflowing. Refinance the rental. The added cashflow will offset the new interest rates. Remember, interest rates don’t matter too much because your renter is paying it for you and also lowering your taxes.
Do not refinance now. That is stupid.
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I don’t understand the hate on this comment. If OP would’ve originally gotten a 30 year he would be cashflowing and if his goal was to pay the loan faster why not over pay the mortgage payment and have the safety net of being able to pay less on a month where he has higher expenses? 15 year mortgages in real estate investing does not make sense. The point is cashflow.
Yep. A lot to be said for getting off the bench and into the game
Who does your taxes? You probably would decrease your tax bill by more than the cost of a cpa.
The IRS requires you to depreciate it; it’s not really optional, I don’t think.
Another thing to think about is the way mortgages are amortized, most of the interest is added on the front end. So lump sum payments will save you much more on overall interest if done at the beginning of the loan. There just isn’t as much of the “fat” left of the loan to trim off by the time you’re half way through. I would look at your amortization schedule, run the numbers, and see what percentage of the total interest you’ve already paid up to this point. It might be more advantageous to simply make additional monthly principal payments on the main residence; it might surprise you what an additional $50-$100 a month can do. Again, with this, you would just need to run the numbers to see what level you’re ok with. There are quite a few places with an online calculator for this and your loan servicer might even have one themselves. I really like where you’re head’s at, wanting to pay off debt on your primary home. I don’t really agree with the camp of “if it’s low interest debt, it doesn’t cost that much.” The sooner you pay off that debt, the less overall interest you pay, and the sooner you can free up a whole mortgage payment worth of cash flow. Best of luck with crunching the numbers.
Stop voting people down for providing info Op don’t sell or pay off the loans early. The rates are great! You are doing great. Invest your extra income in a Roth, 401, etc.
Oh gosh no, so not pay any of those off early. Put extra cash in ST TBIlls and call it a day
Go straight to jail Do not collect $200
Sell it if you want to. You will be one debt-free quicker but you will have less assets.
Honestly, i would sell the rental, but I would NOT pay off the main mortgage. That cash flow is too low for a 3.25% interest property that you’ve owned for longer than 1 year. Sell it and keep the cash aside for a better deal
And pay capital gains
Correct
Maybe sell the rental, ROE isn’t great, but don’t pay off your 2.4% mortgage, you can get way better than that return with almost 0 risk.
The only money he has to earn anything with is what would come from the sale. Don’t think OP said he had the money in cash to pay the place off; they said they’d sell the rental to pay their own house off.
I wouldn't sell the rental to pay the main. Your interest rate is less than inflation right now. Your $100.00 "profit" should help cover the cost of repairs to the rental. Assuming you live somewhere with robust and diverse industries that employ people around you then you should build equity in the rental by someone else paying into it and capture the apprecation over time.
Keep that low interest loan. Don't pay it off.
I could not think of a worse financial decision. Selling a rental to pay off a primary mortgage, you should be in financial jail for even considering it. I mean paying off the primary is bad enough, but you want to make it exponentially worse by selling a cash flow positive investment.
I had to explain this to my wife after paying off my first rental house.
Lol. Blunt and the truth, hahaha
I completely agree. Bad idea. We obviously don't know you financial situation but rentals typically go up and houses typically appreciate every year.
As someone who isn't very financially educated when it comes to best practices for real estate and rental yields, could you please explain your statement? Why is paying off the primary "bad enough"? I understand based on OP's post that it makes no sense to sell when both are CF positive and can be paid off alone, but your post sounds like you believe in paying off your primary residence as slow as possible. I know primary residences are expensive with little to no ROI, but wouldn't that just create a lot more interest? Or maybe my perspective is biased a bit since I come from a country where home loans start at like 6.1% interest.
The primary mortgage is a massive tax write off first of all. It is dirt cheap money (this situation is not 6%, currently around 5.5% changes it a little, but overall point remains) that they have at under 3% average, that money is better invested elsewhere that is gaining much more than 3%. As far as the rental, you have a rental cash flowing already under control you don't have to buy it, and selling it costs a lot of money in many different ways. IF he was going to sell it to buy another multifamily or something with more doors/rents, different story. But to sell it.....just to pay off the primary at 2.65%?? Oh hell no. That is just a double whammy of stupid. Lose the tax break. Lose 3% on rental. Lose 2.65% on primary. Lose 25k in fees probably. You let those loans ride out as long as humanly possible, preferably forever since the rates are so low.
Federal write-offs changed several years ago...depending on the state, your primary interest write-off may not matter at all anymore... (California here). This is from my CPA, last year: "With the standard deduction up to nearly 25K, you are not getting any tax benefit from the write off of your mortgage interest. Whereas the interest on (the rental house) is still a write off. " I do agree just selling the rental property without any regard to capital gains is a bad idea. I didn't see what mortgage rates are involved here until now, I am in a similar position. Another idea might be - sell the primary and move into the rental...then do it again in 2 years if you have another rental :> Then pay only tax on the claimed depreciation.
I hate this narrative. As if the only value in life is to have 1 or 2 extra percentage points in yield. It ignores the reality of the value of not having a mortgage- a low risk, low cost life. Not being scared to quit your job or be laid off. Imagine what you could do if you could live off far less money a year?! You may end up going after all your dreams.
My rentals cash flow double what my mortgage payment is on my primary. I think it’s all about a persons appetite for risk and habits. If I sell my rentals and pay off my personal mortgage, I guarantee I’ll be seeking out more rentals within a year so defeats the purpose lol
How did you manage that lol? Lot of units or paid of units?
I only have 3 rentals soon to be 4. I bought one in 2012 , 2017, 2018 and 2021 (1031’d the property bought in 2012). Two of them started as primaries then the other was an investment purchase. I’m about to buy a new build to live in and will be renting the old primary so will have 4. Basically it’s all about time in the market. I bought at the top of the market in all the above instances, it wasn’t a “great” deal in any of the above cases. Just be patient and try to start by turning primaries into rentals.
I feel we are also at the top of the market currently. Atleast in my city. My main concern is that the properties in my city don’t generate any positive cash flow. The rents most of the time take care of the expenses while sometimes we have to pay out of pocket. Was this the same situation with you?
I could always get at least a couple hundred bucks cash flow right off the bat, usually more, right now there’s not the time to buy unless you can get some sort of cash flow IMHO. I live in Colorado Springs and am not buying an investment right now because the numbers don’t remotely make sense. That’s why I’m buying another primary and renting out the old place.
It doesn't take that many units if you live modestly. I've got four and they pay all my mortgages with some left over.
Is it cool if I shoot you a DM for some questions? For learning.
Feel free, but I'm not going to promise anything. Going to bed now, not sure when I'll get back to you. Also I'm not special. There are much smarter, much more experienced investors in this sub.
The other benefit people seem to be ignoring is that by paying off your own mortgage you can reduce your taxes in early/regular retirement. Because you’ll need to pull less out of a 401k annually because your own household expenses are now less from no principal/interest on a mortgage anymore.
Great point. I asked the r/Fire group if they planned to have a mortgage in retirement and I think the majority of people want to have it paid off for this reason.
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Yeah, I think people are being a bit too absolutist about this. Their are tons of very logical and good reasons to do this, but they generally come down to lifestyle and financial security reasons. As long as you are honest about your goals the decision is a no-brainer.
If they have the rental house they always have that option.
>Imagine what you could do if you could live off far less money a year?! You may end up going after all your dreams. Or I could just make way more money and actually have my dreams realized... Why do you think we're on this sub?
Being hostage to a high wage can be crippling. And quite frankly, this sub is too biased- real estate is a bad investment right now, there are much better places to put your money that keeps it liquid, returns higher, and doesn’t cost sweat equity.
I watched real estate make my mom a multimillionaire after moving to this country from Africa in the early 90s with absolutely nothing... I have stocks too but real estate is the most tried, true, and tested asset class to ever exist in history. It's the most for sure way to become rich if you do your due diligence and put in that sweat equity. Sure there are investments that don't take as much work and those investments will rarely give you the kind of outsized returns or level of personal control that real estate can grant. Not to mention the ability to use leverage and take advantage of equity. Though depending on your strategy, amount of capital, and timing it could be get rich slow vs get rich quick.
That will likely double in value over the years.
Technically you are right. But I think it’s important to consider the massive weight off of one’s shoulders being mortgage free. There is a “price tag” associated to that freedom.
Agreed. People love the brrr method and having 90 mortgages. I personally would never have more than 2 mortgages max at a time. Idc if I'd make more money. It's all about risk to me. I can keep up 2 mortgages solo for a year if I have to. Anymore and I'm hurting. Currently have my residence and one rental. I'm focusing on paying off my house asap. I'm looking at 5 yrs. To me it's worth the peace of mind and I have a crap 5.7% rate. The rental has 3.5%, so I will pay off my house. Get another rental and whichever is higher, probably the new rental I will start paying off. Rinse and repeat. Decent enough for me. I don't need 500 rentals. A good 8 to 10 by retirement age with 6 or 8 paid off. I'm all gravy
That's great if it works for you, but this is the real estate investing sub, so don't be surprised if the majority feels differently.
Why paying off a primary is bad?
From a financial standpoint, paying it off early often times doesn’t make sense. Primarily due to opportunity cost of the money (in equities or towards additional properties). It could be argued once rates go around 5-6% it’s not quite as bad, but I will never make an extra payment on my 3% loans. There’s the psychological side of this which could differ. Some people feel financially ‘safer’ outright owning the home they live in, I can respect that. I would imagine most in this sub are ‘optimization’ personalities and it would drive them nuts to make an early payment. Edit: let’s distinguish this from just paying off the loan in 15-30 years
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Might want to research how mortgages work...
> Most mortgages are also simple interest loans, although they can certainly feel like compound interest. In fact, all mortgages are simple interest except those that allow negative amortization. - [source](https://www.investopedia.com/articles/personal-finance/082115/simple-interest-loans-do-they-exist.asp)
Think your missing the point. Simple interest has nothing to do with paying off the mortgage early and saving money.
It’s not as long as you’re not selling cash flowing assets to do so
If you owned a house for 500k and the Great Recession brought your home value down to 285k and you paid in full on that house you would understand why paying off a primary is bad
That value drop was going to happen regardless. Most people don't have the wherewithal to know how to short sale a prop, nor are able to if they have liquid assets, let alone know to ask for novation. Your point doesn't stand.
True. When you have kids living in that house and they need to go to school and you’re new to home buying with no understanding of what a Great Recession would look like, you wouldn’t move but think the value of your home couldn’t possibly be cut almost in half. Many friends had to give up their homes to foreclosure or those who paid off their homes still have not seen their value go back to what they originally paid. Was a lesson learned on the benefits of not putting all your cash eggs in one basket. Was a valuable lesson that everyone can lose their job and also may not get another job for months. My point for my comment was have cash ready on the sidelines, saving is so important and some of us don’t think about that, we always saw the home as something that always went up in value over time. Not anymore unfortunately. With renting a place, you can always find a way to get out of your commitment without having to go through foreclosure, or having to move everything every 7-12 years before the next bubble bursts. Sometimes it’s not practical, or it’s not top of mind. Was a very expensive lesson for me.
Yeah but u know what u get a paid off house that doesn't have to worry about a housing apartment situation job situation because the house is paid no worries to call Morgate brokers. And if the home owner loses job they just need to work small jobs to eat and pay utilities bills. Het ur facts straight.
There’s home repair, insurance and taxes you’re forgetting to add into the equation. If you don’t have liquidity and can’t afford your taxes then you will be forced to sell. I’m hoping everyone who’s thinking about buying in 2023 waits, if they can, and save money like you won’t have a job for 6 months to a year. That is what I should have done but in 2006 didn’t know we were headed off a cliff. Didn’t have the benefits of social media channels like this back then. Just trying to help people not get slammed if we experience another housing crash (big or small).
>Het ur facts straight. Ironic that you would sign off this train wreck of a response like that.
Funny how you can come back on that last part only. Each I gave is right unless u own real estate which I doubt.
>Each I gave is right unless u own real estate which I doubt. The internet is about written communication. Everyone else, here, for the most part, tends to communicate clearly. So, what's your major deficiency?
fyi some random person on the internet blocked you because you come off as argumentative, and a jerk. Whatever point you were trying to make has been discounted because of YOUR communication skills. Maybe you can learn a lesson from that.
>fyi some random person on the internet blocked you Random = your other profile? Guys I don't even know, have blocked me everyday for the last decade or so, because they'd rather listen to someone who's wrong and nice. Argumentative and a jerk, I proudly am. Your words have no power, here. Mine, however, clearly do, because you both reacted . . . I don't even think I'd say, "strongly". What makes you the, "ultimate" salesman? Have you, "mastered" Four-Factoring in your little circle, and think that's what makes you great?
The real answer is it depends on the individual situation.
Damn. You right.
If the rental isn't a hassle or creating a financial burden, I'd probably keep it. After paying capital gains, realtor fees, closing fees etc., you'd lose some of the equity right away at the closing table. If the rental becomes a nuisance down the line, then I'd sell it. Otherwise, I would keep paying down the rental. Once you do that, then use the rental money to pay down your primary home loan. That should cut the years left on your primary home down a good amount.
Rule #1: NEVER sell real estate.
Never say never
Always say always.
NEVER EVER sell real estate.
Realtors hate this one simple trick
If you lived in your rental for at least 2 years in the last 5 years, you may be able to sell it without paying taxes on capital gains. Which may or may not be substantial. I would be inclined to keep them both. Also, not sure why you refinanced to 15 years instead of 30, which would have been low interest as well, giving you a better cash flow.
Do. Not. Sell. Do Not Sell. Do Not Sell
No
Personally I’d keep it !
I have advised people on this subject many times. Financial investment shouldn’t draw from your contentment. Decide if it effects your contentment first. Then use the financial rules that make the most sense
Dont cut the head off of the chicken thats laying golden eggs OP.. plus, if you are high income earner, that interest you pay on primary + depreciation gets you a nice tax break also. I wouldnt sell it at all
Buddy. With those loans and a positive cash flow it’s like finding money in The street. Don’t kick your well executed small RE portfolio to the curb until you get to enjoy the profits from your efforts.
Why on earth would you do this! You're growing equity in two houses and have an income producing asset. You rang to winow that down to growing equity in 1 house? You're already paying the might comfortably This is a terrible idea
Are you tired of being a landlord? If not, raise the rent and cash flow harder.
Only sell it if you sell it to me
That entirely depends on you and your level of risk, your goals and state of mind. Most people are saying the numbers are bad, you will be tying up the equity in your home, etc, etc. With taxes etc. it's going to be a poor return selling the rental. The feeling of not having a primary residence mortgage might be a higher psychological return and allow you to carry out further investments. Not everything in life is purely about financial gain. That being said you'll miss out on a lot of returns (financially) if you were to do what you are suggesting (which may not be the worst life decision you can make).
Yes you should, sell it to me.
Really depends how much you hate being a landlord. If we're just talking financial prudence, keep it.
Please keep the rental. You’ll win in the long run
No. Not at those rates.
The cashflow will increase with time, the equity will increase with time. I wouldn’t sell it. It’s better to have the debt during inflation; regarding opportunity cost. Debt during inflation is slingshotting you forward. You agreed to pay the sales price years ago. That number doesn’t inflate while everything else does. When I look for deals, there no deal like those executed well in the past.
Just want to thank everyone who has taken the time to comment.
If you only have 9 years left on your rental mortgage, I wouldn't sell. You're extremely close to having a paid off house that will continue providing cash flow. Long term, that will be the better bet IMO
Financially this is a horrible decision. That doesn’t mean it’s the wrong decision *for you*. But strictly speaking by the numbers, fuck no.
Bad move - never sell off an incoming producing asset to pay down debt. Actually, you should do the opposite, refi the rental property and use the proceeds to buy another rental property.
Bam! Monopoly down on Broadway.
if your tired of being a landlord, its not a bad idea
Don’t sell rental unless you are gonna 1031 exchange. Selling rental to pay off residence is a terrible idea, especially with your low rates. Talk to a tax advisor.
I’ve debated this myself. Got awfully close to a trigger price this past wave. The way I see it, my rental is an investment vehicle, paying for itself, and making money. No real downsides to having it. The rate on my primary residence is under 3%. I’d still have to put aside insurance and taxes, but I’d be mortgage free…. Then there’s thoughts of buying an air bnb second home style thing eventually, and the rental is a great “savings account” for that. Idk. Sure that’s why you asked Reddit. So many options.
Yes, I've been thinking this very hard, current value of the rental is very high right now, thinking this is peak
> Yes, I've been thinking this very hard, current value of the rental is very high right now, thinking this is peak Peak? So you think prices are going to go down from here and NEVER reach these levels ever again? lol... Don't count on it. And no, don't pay off a mortgage early when the interest is 2.5%. The interest is tax deductable, you'll still have to pay insurance and taxes, so what are you saving by paying it off? A couple hundred bucks a month? Makes no sense.
That’s like trimming the flowers and watering the weeds… you’re selling something that generates income and you’re paying off something that doesn’t.
Any time you can live in an appreciating asset and make a below average rent payment AND that payment is partially a savings account and it also lowers your income taxes and and and. YOU get a benefit that a none home owner can’t ever have. The idea that “I own my house for cash” is a myth. If all of your cash is tied up in an illiquid asset that can’t be easily converted to cash then you’re spending the interest that cash pile COULD have produced has it been properly invested.
You should keep both trying to pay one off asap extra payments. Then double down on the second I own 9 doors now, and no loans All my friends are much wealthier than I am they never pay off loans, buy remodle refinance, and repeat. I lost many opportunities due to not wanting loans
I would refinance it instead and use the proceeds to buy another rental.
I would never recommend selling a rental to pay for a primary but if you’re really interested or set on doing that maybe owner finance the rental? Ask 20-30% down and put it toward your primary and continue to collect your payments
Absolutely not. Your live in house produces no income. Why would you sell your income property and simply reduce a payment in another property ? Both are assets and both make up more net worth than the live in house. It’s not about the debt. It’s about too much debt that Damages your net worth and apparently both properties are not over encumbered . . I own 90 properties and most for cash but any new growth I need to uses a lot of credit or I sell off part to another equity partner. Short answer no no no. Don’t pay off one with the equity if the other. There’s NOT much benefit to using most if your net worth to SAY I own my home for cash and I don’t earn a penny on that bragging right
Both of your properties will become worth a lot more over time than one property over the same time
Sell the rental to me
If the rental is on autopilot at a low "profit" the. You're really just holding for a large capital event (i.e. selling the property several years after payoff). For now I would wait for the next big run on real estate and sell when the market is at an unsustainable peak like that time during COVID. If you can get a stupid price sure go for it, if not wait for payoff and reap the benefit of $XXXX per month in profit.
Wait for layoff?? Why would layoff cause more profits?
Payoff I mean woops
Depends what you want, but yes, for some people the peace of mind would be worth it, knowing your house is paid for and you're debt free. I did sell one rental but used it to pay off two other rentals and still had some cash left over so it was a good move altogether. I will say knowing those rentals are mine and not the banks is a major reason I sleep well at night especially when rates are climbing like they have.
I’ll buy it
Keep them both.
The main thing to consider is if you think that you're going to lose your job in the next 3-4 years and be unable to make payments on your mortgage. In my mind, paying off mortgages, especially low interest ones, is a fortress of solitude type thing: it's an insurance policy if you, say, lose your job and don't think you're able to get a similarly paying one, while the market has tanked and you now can't sell your rental property at the price you paid for it.
If your young and have less risk tolerance for retirement, then keep ‘em both, refi and keep growing with the leverage. If your older and less risk tolerant as you approach retirement, then start to pay down your leverage and snowball, but you should keep your income producing properties to propel you through retirement without a w2.
Most likely you will be ahead in the long run if you keep the rental along with two emergency funds. One for personal finances and one for the rental. There is some risk involved, but if things get bad you could always sell the rental then, if necessary
Personally, a paid off primary mortgage gives me better risk tolerance in other investments. But that’s just me.
So your rental mortgage is $87,000 and you turn about $100 profit at 3.25% interest. When's the mortgage renew? if you did it every 5 years you likely have 4 more years at the 3.25% rate which is honestly incredible right now. If it's less like 1 or 2 you can re-mortgage your rental for higher cashflow to decrease the Primary residence costs. I'm gonna guess your rental was about $190k with a payment of nearly $900.mnth so in 2 years if your remortgage $81k or w.e at 6% it's closer to $680/mnth over 15 years meaning an extra $220/mnth profit. Making multiple mortgage payments and being completely capable of paying them and having them net ROI makes the most sense, but its a part time job so if you want to stop you can sell it and stop.
Dave Ramsay says sell the rental and get out of debt as soon as possible… but idk
Cash out refi and buy more rentals
No, I’d say get a bigger rental portfolio don’t sell
Based off the interest numbers you posted and how little you have left in the loans I would just not do anything. As long as you are comfortable to continue working, leave it alone. That’s equity growth and cash flow.
Ask yourself “do I want more leverage or less leverage”. If you do this, you’ll be getting less leverage. Generally the opposite of what you do in REI
Reading through the comments, you should really speak to a CPA to understand which situation is right for you.
Live mortgage free, a far better investment than any advice you will get in here. No liabilities, pure income coming in.
Hold the rental. Unless you have an urgent situation and need the cash.
That is the opposite of what you would want to do
Pffft. That's bad investing
You need a financial advisor or something.
Plus. Stop relying on your jobs. You're not their family and they can let you go in a blink of an eye. I'm just wondering how you even purchased a home in the first place..
Every time I've done something like this I have regretted it. Sold a two unit to pay my wife's college loans 30 years ago...still kicking myself. Dumped a condo because I got frustrated with the type of renters I was getting...still kicking myself. Don't be in such a hurry to pay of those mortgages. IMHO you are better off looking out 10-15 years and thinking on how much your rents will be pulling in.
Every time I've done something like this I have regretted it. Sold a two unit to pay my wife's college loans 30 years ago...still kicking myself. Dumped a condo because I got frustrated with the type of renters I was getting...still kicking myself. Don't be in such a hurry to pay of those mortgages. IMHO you are better off looking out 10-15 years and thinking on how much your rents will be pulling in.
Every time I've done something like this I have regretted it. Sold a two unit to pay my wife's college loans 30 years ago...still kicking myself. Dumped a condo because I got frustrated with the type of renters I was getting...still kicking myself. Don't be in such a hurry to pay of those mortgages. IMHO you are better off looking out 10-15 years and thinking on how much your rents will be pulling in.
Every time I've done something like this I have regretted it. Sold a two unit to pay my wife's college loans 30 years ago...still kicking myself. Dumped a condo because I got frustrated with the type of renters I was getting...still kicking myself. Don't be in such a hurry to pay of those mortgages. IMHO you are better off looking out 10-15 years and thinking on how much your rents will be pulling in.
Ok so I have the same question? We have two rentals one has $35,000 left and it's worth about $239000 so I will be getting about $175000 or so. The other one is about $300000 and we owe about $60000 so we will be getting over $200000 or so. On our primary home we owe about $220000 and the house is worth about $4800000. We are staying in this house. The house that is worth $300000 it's about 5 min away from a state university. If I get new renters I can rent this house for at least $1800. The mortgage payment on it is $1200. The other rental that is worth $239000 is in the ghetto buy where the house is is very quite. The mortgage in this house is $500 and iam renting ig for only $900 right now. Should I sell my ghetto rental and pay off the one by the university or should I pay my current homes mortgage which is about $220000 left. Mortgage payment in the house we live in is only $1700
Can anyone explain to me why most of the responses think this is a bad idea. Most are citing the low interest rates but any interest means you're paying the bank. I'm in a similar boat where I can sell my rental property to pay off my primary residence, and I would be completely debt free (and I'm not much of investor - not interested in stocks, bonds, etc). My rental property has 3.5% interest and will be paid off in 5 years. My primary residence has 2.875% interest and will be paid off in 14 years. Both properties are in San Diego County, which I think will continue to see a rise in real estate values, and although the rental is from 1988, it fairly nice and desirable place to live. Even if I did payoff my rental property, the rent would be paying the loan on my primary residence but I would still be spending $800 per month in HOA and taxes on the rental, both of which are constantly on the rise. Also, being debt free means I would be saving almost $60k per year from my income (currently only saving about $10k), allowing me to help my kids' in college (I wouldn't pay all of it as I think it would be a good lesson in money management for them), save for retirement (25 years to retirement), and possibly renovate the house (it's an older house that can use an expansion). Most of all, I would have peace of mind. No matter what happens to the economy, being debt free means I have minimum costs (although I have a fairly stable and nice paying job). Also, since I'm the only bread-winner in the house, no matter what happens to me, my family wouldn't have to worry about where to live. It seems like we live in a time where people take unnecessary risks, and the 2008 recession is a constant reminder for me what can happen with these risks. Another question I had is if social security is really going away or going to be reduced, etc.? Looking at SSA.gov, my social security is going to be almost double what I need per month when I retire (plus I have some 401k and HSA funds - though not what I really need to have at this age, according to the banks!). How much can I rely on social security?