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Started By
Message
Would you pay off a 6.5% rental?
Posted on 2/5/24 at 2:45 pm
Posted on 2/5/24 at 2:45 pm
I'm in a position after selling a rental I don't like to take those proceeds and either keep the cash or pay off a rental I do like.
It rents for $2200 a month.
193k balance.
My other rentals are in the 4's and not considering those in terms of paydown.
Other item is it's likely the home my kids will live in while in college. (So ideally wanting a place without a mortgage) since I wouldn't be getting market rent with them there.
It rents for $2200 a month.
193k balance.
My other rentals are in the 4's and not considering those in terms of paydown.
Other item is it's likely the home my kids will live in while in college. (So ideally wanting a place without a mortgage) since I wouldn't be getting market rent with them there.
This post was edited on 2/5/24 at 3:29 pm
4
Posted on 2/5/24 at 3:09 pm to Billy Blanks
I'm confused... Are you asking if you should pay off a rental that has a 6.5% interest rate?? A few questions you should ask yourself:
1. On my other rentals, do I have any loans that are coming due and potentially the monthly payment will increase?
2. Do I have any other rentals where the lump sum that I received will payoff any other loan thus creating a snowball affect(effect?) to be able to pay off all loans faster?
3. Do I have any deferred maintenance that needs to be taken care of and possibly increase the rent of another rental?
1. On my other rentals, do I have any loans that are coming due and potentially the monthly payment will increase?
2. Do I have any other rentals where the lump sum that I received will payoff any other loan thus creating a snowball affect(effect?) to be able to pay off all loans faster?
3. Do I have any deferred maintenance that needs to be taken care of and possibly increase the rent of another rental?
This post was edited on 2/5/24 at 3:11 pm
Posted on 2/5/24 at 3:30 pm to b-rab2
Yes, asking about paying off.
1. Property taxes and insurance have gone up across the board but still cash flowing decently.
2. Considering this one only because it’s the highest rate one.
3. No, all the others have new appliances, floors, water heaters, and hvac
1. Property taxes and insurance have gone up across the board but still cash flowing decently.
2. Considering this one only because it’s the highest rate one.
3. No, all the others have new appliances, floors, water heaters, and hvac
Posted on 2/5/24 at 3:33 pm to Billy Blanks
Without knowing every single detail, I have to go with my gut which is that above around 5-6% is when I would personally rather payoff a mortgage instead of holding cash/investing.
So IMO yes - sell the rental you don't like, pay off the 6.5% rental you do like that your kids will live in someday. Just the overall peace of mind from this move simplifying things would for me be worth it. Factoring in the 6.5% is just icing on the cake.
So IMO yes - sell the rental you don't like, pay off the 6.5% rental you do like that your kids will live in someday. Just the overall peace of mind from this move simplifying things would for me be worth it. Factoring in the 6.5% is just icing on the cake.
Posted on 2/5/24 at 4:43 pm to Huey Lewis
quote:Is the 6.5% deductible?
l, I have to go with my gut which is that above around 5-6% is when I would personally rather payoff a mortgage instead of holding cash/investing.
Posted on 2/5/24 at 5:20 pm to Big Scrub TX
quote:
Is the 6.5% deductible?
My yearly interest is, I itemize on my return.
Posted on 2/5/24 at 5:20 pm to Huey Lewis
Thanks for the feedback
Posted on 2/5/24 at 5:59 pm to Billy Blanks
quote:Well, I would think that clearly has to be taken into consideration. What is your implied after-tax rate? Is it still so high that you would seek to retire long-term debt that carries no prepayment penalty?
My yearly interest is, I itemize on my return.
My general advice is to be very slow paying off mortgages. Your OP doesn't really say if you are cash flow positive.
Posted on 2/5/24 at 6:28 pm to Big Scrub TX
Why do you say very slow? I’m the opposite, I am aggressively paying down debt.
Posted on 2/5/24 at 8:46 pm to b-rab2
quote:Because it's so exceptional that I consider it to be an asset:
Why do you say very slow? I’m the opposite, I am aggressively paying down debt.
ultra long-term
fixed rate
no margin calls ever (as long as you make the minimum monthly payment)
asset based
dischargeable
no pre-payment penalties
AND tax deductible
My goal would be to have the longest mortgage possible outstanding at all times. I mean, if the rate is too high, then this analysis diminishes, but in general, it's crazy that they give them out!
I would assume you're at least in the 32% marginal rate bracket - that means your mortgage is costing you 4.42%...in an environment where inflation is at least 3%. You're borrowing at like 1.5% real! Why would you be in a hurry to pay that back - especially since it sounds like you like to invest in RE?
Posted on 2/5/24 at 10:20 pm to Big Scrub TX
Most of my loans now are commercial with 5 - 10 year balloons so I try to pay a good chunk up front in the first few years so the refi isn’t stressful on my finances.
Posted on 2/5/24 at 10:31 pm to Big Scrub TX
quote:
Why would you be in a hurry to pay that back
Anticipating 4-10 years where I'm not getting market rent from my kids. And, it's my only rate, that I don't love at 6.5%
Would get the full cash flow for the next 7-8 years.
I agree with your points regarding my other rentals. Not sure the path on this one.
Posted on 2/5/24 at 10:32 pm to Big Scrub TX
quote:
Your OP doesn't really say if you are cash flow positive.
$400 a month until my kids live there for school.
Posted on 2/5/24 at 11:25 pm to b-rab2
quote:Yeah, I'm only speaking of resi. Commercial with balloons is a whole nother ballgame.
Most of my loans now are commercial with 5 - 10 year balloons so I try to pay a good chunk up front in the first few years so the refi isn’t stressful on my finances.
Posted on 2/5/24 at 11:26 pm to Billy Blanks
quote:Yeah, the rate is sort of cuspy. If you have the cash to pay it down, I still lean towards leaving the loan outstanding and re-investing that or, at the very least, getting 5.5% in cash.
I agree with your points regarding my other rentals. Not sure the path on this one.
Posted on 2/6/24 at 6:52 am to Billy Blanks
I would probably just stay solvent. You can mitigate your 6.5% by parking in a 4% to 5% savings or even 30-day CDs rolled over.
If an investment is funding its own debt service and there is no real money to be squeezed out of that, I would just let it ride. Obviously, if it was 9 or 10, I might think differently.
I mean, $200k cash can reliably bring home over $700 a month in a cash account in the current savings rate environment.
(ETA: You can draw that down while your kids live there, I suppose, but if the asset is staying in the portfolio and go back into service as a revenue generator after the kids are done, I would just keep that note until the end.)
If an investment is funding its own debt service and there is no real money to be squeezed out of that, I would just let it ride. Obviously, if it was 9 or 10, I might think differently.
I mean, $200k cash can reliably bring home over $700 a month in a cash account in the current savings rate environment.
(ETA: You can draw that down while your kids live there, I suppose, but if the asset is staying in the portfolio and go back into service as a revenue generator after the kids are done, I would just keep that note until the end.)
This post was edited on 2/6/24 at 6:56 am
Posted on 2/6/24 at 7:34 am to Ace Midnight
And if he itemizes and gets a tax benefit, the delta between the mortgage and the cash is even smaller. I generally would think of paying off that high of a rate but it would be under circumstances where you still have plenty cash leftover and you weren’t using it for a tax advantage.
Posted on 2/6/24 at 8:49 am to lynxcat
quote:
I generally would think of paying off that high of a rate but it would be under circumstances where you still have plenty cash leftover and you weren’t using it for a tax advantage.
In this case, I'd have plenty. Wouldn't touch a dime of current liquid money or impact other investments.
Posted on 2/6/24 at 9:26 am to Billy Blanks
Right in the borderline range. Some of it depends on what you will do with the proceeds.
I was in a similar position a few years back. The rates were different but similar spread. I used the money to buy a small lakehouse. We used it for both personal use and rented it on Airbnb. We are currently selling that property for a huge gain.
I was in a similar position a few years back. The rates were different but similar spread. I used the money to buy a small lakehouse. We used it for both personal use and rented it on Airbnb. We are currently selling that property for a huge gain.
Posted on 2/6/24 at 10:04 am to KWL85
quote:
Right in the borderline range. Some of it depends on what you will do with the proceeds.
I was in a similar position a few years back. The rates were different but similar spread. I used the money to buy a small lakehouse. We used it for both personal use and rented it on Airbnb. We are currently selling that property for a huge gain.
A definite hold if we decided to pay it off. It's the easiest rental we have to rent and now fully updated inside and out.
Just not wanting to eat that rent loss when they are in school is the main thing for giving me that itch to do it.
I'd probably take the 2200 each month and plunge it into the market.
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