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Guest JML

Refi Or Pay Off ?

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Guest JML

Scenario :

Own a property for 18 yrs lived there 14 yrs.

have it rented for past 4 yrs

App, Value ( tax rolls 83,5k comps 90k)

Mortg. bal. 43k monthly pymt. 755.00 (incl. PITI)

Renting for 925.00 mnth.

intention : hold as rental for many years

 

have been adding 75.00 dls. to rent and sending

1000.00 a month mortg. pymt.

amortization table shows paid off 5 yrs

 

Seeking best cash advantage and tax benefit:

 

Should I refinance or pay off in 5 years ??

 

Since I plan to hold this prop. indefinitely, would it be to my

advantage to refi and get as much cash out as possible

and keep taking advantage of tax and interest deducts.

 

or pay off and lose any interest and tax deducts?

figuring : 925 x 12 = $ 11100.00 taxed at 28% 3108.00

11100 minus 3108 = 7992.00

7992.00 minus prop. tax 2450.00 = 5542.00

5542.00 minus insurance 1000 = 4542.00 net yearly profit.

 

Any recommendations are appreciated..Thanks

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JML,

 

This is not a tax question. You already know the tax treatments involved.

 

You really have a question of whether leverage is good, or bad -- or, rather, whether a high cash flow is less desirable when generated by a free and clear property. You need to find the answers to your questions in your own investment strategy, long term investment goals, and your own financial planning needs.

 

This topic was originally posted in the Tax Strategies Forum, but moved here for more appropriate exposure.

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intention : hold as rental for many years

Seems you are wanting to hold long term. Your current monthly cash flow after PITI is $170. You have $47K of equity in the property.

 

just a estimate here but...

 

JML if you were to just refi and not pull out cash your monthly payment on the balance of $43K would be around $300 to $350 with no mortgage insurance. You would have $625 positive monthly cash flow. Nice! ;)

 

However, cash is king and $43K is a nice bank roll. Pulling cash out and your payment may stay about where it is now and you could maybe leverage your cash buy picking up a few more investment properties. Nice! :)

 

or maybe...

 

You refi for that lower interest rate pull out a lower amount of cash say $20K and also receive a better monthly cash flow. Nice also! :)

 

And of course, as I learned from MC, you can't forget the Mrs. especially when she's been eye ball'n that fur and those new pumps.

 

No one can tell you what to do. You know your situation better than anyone. If you can not decide now, don't do anything and take a look at your goals on which to base your decision.

 

JML half the battle is knowing where you are going...the other half is getting there. :)

 

my2(non)cents

<Steve>

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have been adding 75.00 dls. to rent and sending

1000.00 a month mortg. pymt.

amortization table shows paid off 5 yrs

 

JML,

Steve gave some great advice. But, to me it looks like you have answered your own question with your action. Back to what steve said, I think if you want to be a landlord (LL) commit to what you want to do. If you are serious steve keyed on a very good idea to pull cash out for other properties. You need to sit down with a pro (cpa). He will give you tax advantages and disadvantages.

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