Author Topic: First Time Landlord- Business Question  (Read 2231 times)

SeattleGuy

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First Time Landlord- Business Question
« on: January 18, 2013, 12:01:45 PM »
I live in a condo with my wife and the mortgage is upside down to the tune of $50k.  The mortgage is actually a split mortgage with the second mortgage at 9% and there is a 50k balance on it.  This was done to avoid PMI.  I have decided to rent a larger space nearby to accommodate a future family and rent out the condo that I am in now.  I don't want to own two homes.

I have the ability to completely eliminate the 2nd mortgage (approx 50k)  in its entirety.  By doing that, I free up about $500 a month in mortgage payments. I actually end up in the positive by $50 each month since the rental income will become greater than the mortgage.  If I decide not to pay off the second mortgage, I am in the negative about $500 a month since the mortgage will be greater than the rental income.

Here is my question.  Even though I can financially swing being in the negative by $500 a month, is there any reason I should hold onto the 50k that I would use to eliminate that second mortgage?  Basically, I am treating that second mortgage like a high interest credit card.  My sense is I should eliminate it and replace that money over the next 6 months to a year.

Thoughts?
« Last Edit: January 18, 2013, 12:18:56 PM by SeattleGuy »

James

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Re: First Time Landlord- Business Question
« Reply #1 on: January 18, 2013, 12:18:30 PM »
Is there any chance at all you would eventually do a short sale or foreclosure?  I'm not sure what state you are in or what options you have in to walk away, or if you would consider that ethically since you have the ability to fulfill that obligation.  But that is the only issue I can think of that might balance the 9% cost on that mortgage.  I would absolutely pay of that 9% mortgage otherwise.

I would also stay in that condo until you have an absolute need to move, don't move in the anticipation of needing more space.  Every month you live in the condo is another month you have more to put in savings, keep your options open, etc.

arebelspy

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Re: First Time Landlord- Business Question
« Reply #2 on: January 18, 2013, 12:28:40 PM »
And if you are considering anything like that, you have a lot more negotiating leverage with a second.  Firsts are a lot less likely to reduce interest rate, terms, and especially amount.  Seconds are a lot more willing to reduce principal amount owed.
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Nords

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Re: First Time Landlord- Business Question
« Reply #3 on: January 19, 2013, 01:30:07 PM »
In today's investing environment, I think it makes a lot of sense to pay off any debt with an interest rate over 5%.

Especially when you can get a home equity line of credit at 2-3%.