Author Topic: Rental condo mortgage - advice, please  (Read 456 times)

coaster831

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Rental condo mortgage - advice, please
« on: August 20, 2019, 08:13:36 AM »
There is a long backstory to this, but the summary is: my wife and her sister co-own a condo they bought before we got married.  It has been underwater since then, so we rent it out at negative cash flow.  The mortgage rate is floating and a bit high, so we are considering refinancing, but we'd have to bring a large amount of cash to closing to obtain a decent LTV.  My wife and I are pursuing FI, so being cash-flow positive is appealing to me, at the cost of taking $75k out of our taxable (not insignificant) to hit that LTV.

So, given the following options, what would you do?  I think I'm leaning towards the 30 yr refi - tell me why I'm wrong.

Here's the relevant number info and options (all numbers are joint total between my wife and her sister):

CURRENT:
Condo value: ~$285K
Remaining loan amount: $285K, rate ~5% (floating), 15 years left on mortgage
Gross rent income: $1725/mo
Net rental income: Taking into account HOA fees, etc., we are cash-flow negative ~$1k a month (although the rent covers all fees, mtg interest, and small part of the principal)

Options:

1) 30 yr refi
- Mortgage 213k @ 4.5%
- Need to bring $75k to closing
- Would be net positive about $100/month until mortgage is paid off, then make about $1200/month today's dollars

2) 15 yr refi
- Mortgage $213k
- Need to bring $75k to closing
- Would be net negative about $360/month until mortgage is paid off, then make about $1200/month today's dollars

3) Do nothing, ride it out for 5 years and reassess whether to just sell at hopefully breakeven after closing costs
« Last Edit: August 20, 2019, 09:49:04 AM by coaster831 »

waltworks

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Re: Rental condo mortgage - advice, please
« Reply #1 on: August 20, 2019, 08:32:48 AM »
Sell immediately at a small loss. All your other options are terrible.

-W

Jon Bon

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Re: Rental condo mortgage - advice, please
« Reply #2 on: August 20, 2019, 08:50:04 AM »
Wow, yeah horrible rental. But I get it. Whats done is done, and move forward.

So your going to SPEND 75k of good money to make $100 a month? Why would you even consider that? It is a horrible outcome. That is like spending 75k on a bond that pays out 1% a year 30 years from now!

Honestly it looks like you should be willing to sell this thing and take a hit UP TOO a $75,000 loss. There is no way this house is a good rental. It is going to be a boat anchor forever. There is no scenario where it makes sense to keep it. Your absolutely best case is you are cash flow net zero on this thing. However you are going to have 300,000 dollars tied up in it earning you somewhere between -5% and 1% per year.  This house should never be kept as a rental in the numbers you posted.

 

coaster831

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Re: Rental condo mortgage - advice, please
« Reply #3 on: August 20, 2019, 08:59:15 AM »
Thanks, pretty strong responses for sell ASAP.  For sure I knew it was a bad rental if we hadn't already bought it, but maybe I was considering it as not so bad since it was already purchased and we'd have to pony up cash to sell it.  I have to rethink that. 

So, given the numbers I've posted, everyone would put cash up to sell it right now?  Tough pill to swallow, but sunk costs, blah blah blah.

waltworks

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Re: Rental condo mortgage - advice, please
« Reply #4 on: August 20, 2019, 09:52:24 AM »
It's not an investment, it's a smelly second cousin hanging around living in your guest bedroom eating all your food.

Seriously, your priority should be to get rid of this condo immediately. Yes, you will have to bring money to closing. C'est la vie. It's no worse than a year of your current expenses.

The only situation in which I'd keep the place would be if you expect MASSIVE appreciation in the next few years for some reason.

-W

Jon Bon

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Re: Rental condo mortgage - advice, please
« Reply #5 on: August 20, 2019, 10:02:26 AM »
Yeah sorry your in this situation, its terrible. But I would bet the day to you sell that house will bet he best 10k you spend all year. Honestly I think the boat analogy is appropriate here.

Do you want to know the best two days of a boat owners life?
The day he buys the boat and the day he sells the boat.

They are expensive, maintenance hogs, never pan out the way you want, always breaking etc. Require expensive upkeep and generally you just have to keep an eye on it.

Boat = your condo

Kierun

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Re: Rental condo mortgage - advice, please
« Reply #6 on: August 20, 2019, 01:31:48 PM »
Echoing W and JB, cut your losses.  It'd be interesting to see how the conversation goes with your wife and her sister.  Hopefully you can convince them to come to terms with the losses and sell.  You can take your losses now in one transaction or suffer a slow bleed through at least 12 cuts a year and then the additional cuts from assessments, maintenance, etc. which could easily add up and surpass the losses if you were to sell.

coaster831

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Re: Rental condo mortgage - advice, please
« Reply #7 on: August 20, 2019, 01:51:39 PM »
Thanks, everyone.  I think they will be more on board with selling than I am.