Financing in 21666>Question Details

CubbieFan, Both Buyer and Seller in Stevensville, MD

We have primary and an investment property, both with mortgage... which one should we try to payoff first?

Asked by CubbieFan, Stevensville, MD Sun Jun 13, 2010

We have a primary home mortgage in amount of $ 278,000 fixed 30 year 4.75% and rental property mortgage in amount of $ 126,000 fixed 30 year at 5.65%... we are looking to make extra payment, something like $ more 300-400 per month to build equity and to try to pay off the loan earlier, if possible. And, we are trying to decide which one, or... split and pay $ 150-200 extra on both... Simply looking at the interest rate, answer might be rental property, since it's got higher interes rate, but I am thinking this might be more complicated than just interest rate, since entire amount of interest paid for rental property is deductable... Any pointers?

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Youngster I might think about saving the extra to purchase another rental. As for the value of the property going up I would not worry about that. I have never bought an investment property that did not cash flow. If you are looking at appreciation you are getting into the area of being a speculator. We all know what is going on in Florida and California due to speculators.
Talk to your tax advisor if you want to pay down one early to see where the greatest benefit for you would be. As for return I don't know about you but on your investment in the current envionment you would control the property for about 25,000 out of pocket. Principle and interest would make a payment of 698.00 a month. If you can not make a return of 10% a year on your 25000.00 you need to look at your rental rate or your purchase stratagy. Appreciation and paying down the mortgage on the investment are just the icing on the cake.
0 votes Thank Flag Link Mon Jun 14, 2010
One more thought....if you financial advisor suggests an alternate investment and you wish to continue to purchase rental properties, consider looking into a "self directed IRA" which, if you save enough cash to make the maximum contribution each year can be directed to purchase your piece of investment real estate once you have sufficient monies to do so. Look at http://www.penscotrust.com to learn more about self directed IRAs.

Good Luck!
Web Reference: http://www.penscotrust.com
0 votes Thank Flag Link Tue Jun 15, 2010
It would probably be easier to pay off the rental property with the lower balance and higher interest rate but as was stated it makes sense to talk with a financial adviser and see what will benefit you the most. Honestly right now you could refinance that investment property at about 4.875% so it may make sense to do so if you can avoid paying crazy closing costs. You will also want to work with a broker to get the best interest rates.
0 votes Thank Flag Link Tue Jun 15, 2010
One of the reason we are looking to pay extra on the mortgage is due to low interest rate on savings... Thought of saving to purchase another rental home has entered into our mind, but we are not looking to put just 20-25% on rental property. We'd prefer to put down at least 50% to improve the cash flow, and to give us a better peace of mind, should we not be able to find a renter (A problem that has caused headache for my relatives with rental property). I think we'll try to do all 3... save money for another rental property, while paying down both primary and rental property.
0 votes Thank Flag Link Mon Jun 14, 2010
I agree with the points already made that your specific question is best suited for your tax advisor / cpa, however, I would add that you may be able to refinance your investment property to a lower interest rate as rates remain near historic all time lows. Obviously, refinancing may not be an option as you mention you are trying to build more equity, but is at least worth considering.
Web Reference: http://www.nickhomeloan.com
0 votes Thank Flag Link Mon Jun 14, 2010
If i were you, i would pay off the rental with 126,ooo balance left & then buy one more rental property.
But do consult with your financial advisor.
0 votes Thank Flag Link Mon Jun 14, 2010
This sounds like a question better suited to a financial advisor. However, if it were me, I would find an investment that had a better yield than those interest rates cost you. In a market that is not going anywhere quickly as far as appreciation is concerned, do you really want a lot of your cash in an asset that is not appreciating rapidly?
0 votes Thank Flag Link Sun Jun 13, 2010
The best answer should come from a Tax Attorney or CPA that is familiar with your personal objectives!!
0 votes Thank Flag Link Sun Jun 13, 2010
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