2 Newbie Questions

Hi,

I have 1 property worth 220k, that I’m currently renting out. I’m not sure if i’m being smart about it because I have a 150k 15 year mortgage and my rents = mortgage payments.

Would it be smarter to change the 15 year mortgage to a 30 year, so i cash flow positive every month?

Or should I sell the property and take the equity for another investment property?

Sell? Refi? Raise rents?

3 good questions.

The only definitive answer to your questions is: “it depends.”

It may be a good move to refinance your 15 year mortgage into a 30 year mortgage, however, we don’t know enough about you and your financing to answer your question.

Will the lender modify your loan to change the loan term without going through a refinance? If so, then the nominal cost of a loan modification may make the change worthwhile. If not, is your credit score high enough to get a favorable rate if you refinance?

What is the property worth today? You say it is a $220K property, but when was that value established? If that is the price you paid when you purchased, then has the value dropped in this extremely soft real estate market. If the price has dropped, can you still refinance your current mortgage if the lender will only allow you to refinance up to 75% of the current appraised value?

If you refinance, what will that cost you? How much will a refinance lower your monthly payment? How many months/years will it take to recoup the cost of your refinance? How long do you plan to keep the property?

Selling may not be the best course of action either. What will it cost you to sell? How much cash will you have in hand when you walk away from the settlement table? How long have you owned the property? What are the income tax implications for a sale?

Do you have a negative cash flow and is it a financial hardship? How much is your actual out of pocket cost for your property? Can you overcome this with annual rent increases and grow out of a negative cash flow in a year or two?