Author Topic: Need help figuring out what to do with second house purchased at peak (2005)  (Read 1370 times)

Marcpereiraabc1234

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Hi Savy Inverstor(s),

I have a financial scenario that I don't know how to proceed.

My previous house is being rented now and I don't know if I should keep it being rented or to sell it.

Here is the breakdown:

House purchased for $784,000.  Improvement 30,000.  Total: 814,000

It was purchased in 2005. The current original loan was a 7 year ARM. The house rate today is Libor 6 months + index 2.5   Today's rate is at 3.125%. This was a 7 year interest only loan at first.

I have been paying all of these years (almost 10)
The balance is 534,000. When I bought this property I put a 210,000 down payment.

Currently the payment is $2915 + 700 taxes (monthly)+ $50 insurance.  (Monthly)

The loan break down is $ 1525 principal and $1389 interest.

The problem is that the money that I collect from rent is only $2900. For taxes and insurance, I need to pay from my own paycheck every month. 

What should I do? Keep house with same ARM? Refinance? sell?

The ARM loan is a 6 months Libor. With a Max increase cap of 1% a year.
 
The current loan balance is 533,000. We think with the current market improvement we can get around 700,000. ( minus sales commission. we hope)

We have a great tenant for about 1 1/5 year with a lease to expire in May. We haven't raised the rent since it has been rented in 2013.

A few things about this property Northern California
I put 210,000 down payment
30,000 improvements. To finish backyard, fan, stainless appliance.
$2,400 x 12x 8 years ( interest only loan)
House is currently rented. Rent $2,900
I manage myself the property. And I have fixed so far the washer machine (bad switch) and garbage disposal (replaced $80). I feel lucky that I could do the work myself.  House was built in 2005 so it is pretty new.

Currently I am required to send to bank $2915 month

Insurance ($550) and taxes ($7000 which includes Mel Roose fee). I pay annually .

The loan balance is going down. Would it be a good reason to hold on with this property?   The Zillow estimates an annual increase of 7% property values.


My concern is that the loan is an ARM and payment can go higher eventually. Current at 3.125% ARM (Libor + index 2.75)
The positive thing is that more than half of my mortgage payment goes to principal.  $1525 principal and $1389 interest.

I am not sure if the cost of refinance this property is worthy.  I expect higher APR rate because it is a rental unit. 


Thanks for any feedback that I can get from this discussion group. Regards,

Marcpereiraabc1234

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Accounting CPA  says that since I placed this house as an investiment rental property, I now have 20k of suspended tax offset after I sell property.

It costs me 8,000 of negative cash flow per year. Prices of property are appreciating in 2015.

What should I do?

Marcpereiraabc1234

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The investiment loan detais are:
Labor 6 months with 2.75 margin. The max per adjustment is 1%

Loan cap at maximum 10%. This loan Will get paid off in 20 years if I continue with this loan.