Wednesday, August 17, 2011

refi or to pay off

Interest rate at again very low.  So the question is to refi or not to refi for the investment property?  The mortgage on the investment is at 6.5%, I know it's crazy.  I can potentially get it down to 4.5%.  My rent does not cover the mortgage and expense for the place.  My cash flow is not $-1000 per month.  All signs point to yes.

With the refi, I could have a net $0, or positive cash flow. The catch is that the value of the property is much lower now than when it was bought.  So to refi, I would have to sink in some cash.  Do I want to tide up the cash?  It's not like the bank is pay much for it.  I do plan to own it for a few more years.  If I sink $60k, which is likely, I would have net $0. If I sink in $120k, I would have $100 in the positive.  So I gain $1000 and  $1100 respectively.  The closing cost on the loan would be recouped within 4-6months.  The dilemma is that it would take 5 and 9 years to build back up the cash I sink into it.

Yet another option is that if I don't refi and pay off the place in 3 years.  After the loan is paid, my cash flow would be +$2000.  Sweet deal.  It would take 13 years to rebuild that cash, plus the 3 years.  Also, I would not get the tax break if the investment is paid off. 

I think my best option maybe to refi and sink some money into the place.  The only thing is how much to sink in? minimal? to get some positive cash flow?  Cash flow would eventually be positive since rent would rise faster than property tax in this economy, but it would be a while.

1 comment:

  1. I bet Chase is shaking in his boots right about now.

    Also, thanks for an idea you just gave me. I keep a million credit cards afraid that I might need the number or something one day. Never did it occure to me that I can just make copies of them and rid the credit card so I'm not tempted to use em... YAY!!


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