Author Topic: Should I pay off my rental property ?  (Read 1216 times)

texasnewf

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Should I pay off my rental property ?
« on: April 19, 2018, 02:38:38 PM »
Here's the situation. I have 1 rental house only and it rents for $1300 a month. Taxes and Ins come to approx $400.. so if I had the house paid off I'd have about $900 a month in income if I were laid off or retired one day.. I owe about 31k on it and wondering about paying it off completely... I know I'd be losing tax write offs ... but I'd sleep better knowing I'm getting an income if I were laid off again.. ( I was laid off last year for 6 months and it was first and only time in my life.. it was unsettling... )   

Any thoughts on what I should do ?
Thanks

marty998

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Re: Should I pay off my rental property ?
« Reply #1 on: April 19, 2018, 03:49:47 PM »
We would need to know the rest of your financial position to give any sort of depth to this answer.

Have you considered writing a case study?

Gone Fishing

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Re: Should I pay off my rental property ?
« Reply #2 on: April 19, 2018, 06:18:04 PM »
+1 on the case study.  I generally recommend against paying off fixed rate long term debt, but more info is needed.

This link will get you started and there is a link at the bottom of the page for a full blown case study.

https://forum.mrmoneymustache.com/real-estate-and-landlording/how-to-real-estate-case-study-sell-or-rent/

« Last Edit: April 19, 2018, 06:20:47 PM by Gone Fishing »

texasnewf

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Re: Should I pay off my rental property ?
« Reply #3 on: April 20, 2018, 02:03:22 PM »
Market Value: 164,000
Original Purchase price:100,000
Original Mortgage Amount:90,000
Interest Rate:6.375
Mortgage Term:30 yrs
Term remaining: 15yrs/ but unsure because I've made so many extra payments.. if I didn't make another extra payment it would be paid off in about 5 years.
Amount remaining on mortgage: 31,140
Gross Rents:1300
Principal and Interest 561
Taxes and Insurance 413   
HOA costs: n/a

« Last Edit: April 20, 2018, 02:34:57 PM by texasnewf »

FatFI2025

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Re: Should I pay off my rental property ?
« Reply #4 on: April 22, 2018, 08:30:10 AM »
@texasnewf your numbers are great, although the interest rate is a little high and you don't include your maintenance reserve costs, but overall congrats on creating such a quality rental. You should be looking at cash flow and overall return on your equity. Why? Owning a SFH rental carries higher investment risks (concentration, liquidity, legal, etc.) so you need to make sure that you're making higher returns on equity than lower risk alternatives.

If you paid off the mortgage, your equity would be $164,000 with returns around $14,900/yr from cash flow and 2.5% appreciation -- 9% return on equity. That's actually pretty high, so I would consider it.

The tax impact is small in this case. Assuming you're in the 24% bracket and a resident of TX, the $1,985 in interest deduction saves you $476 per year in income taxes.

If this were me, at age 33 and a growth appetite, I would refi and buy another rental. But layoff risk is very real and if having this rental paid off lets you sleep better at night, go ahead and pay it off!

clutchy

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Re: Should I pay off my rental property ?
« Reply #5 on: April 23, 2018, 01:28:09 PM »
Here's the situation. I have 1 rental house only and it rents for $1300 a month. Taxes and Ins come to approx $400.. so if I had the house paid off I'd have about $900 a month in income if I were laid off or retired one day.. I owe about 31k on it and wondering about paying it off completely... I know I'd be losing tax write offs ... but I'd sleep better knowing I'm getting an income if I were laid off again.. ( I was laid off last year for 6 months and it was first and only time in my life.. it was unsettling... )   

Any thoughts on what I should do ?
Thanks


generally I recommend creating a parallel investment account and when they reach parity you decide if you want to pay it off but that interest rate is really high and guaranteed payback. 

I would pay it off now.