Cashout refi on an invesment property to consolidate & save at tax time?

Financing, Hard Money Lenders, Private Money
1 
I'm sure this has been covered here before, so I'll try to be brief.


 I have a single-family rental property that I purchased in 2002 as my primary residence for $64K that is now worth $200,000 with a $54000 mortgage (matures 2023 @ %5.5) and a $50000 HELOC (1st drawn in '03).   It is rented for $900/month (same tenant/lease for 18 months thus far - not one month unoccupied).

 My primary home (another monster fixer-upper that I'm repairing bit by bit) was acquired in 2006 and carries a $59000 balance (matures 2036 @ %6.875)

Given the high rate on my primary residence drawn just last year and the tremendous increase in value on my rental,  I am considering a cashout refi of the rental for +/-$163000 - that's about %82 LTV and I believe I can qualify for 15/20 year rates.

 With those funds,  I'd pay off all 3 mortgages and secure all of my debt with the rental.   Then - if all of my amortization math stands - I could collect as much as $12000 - 7000 in rent tax-free after my interest deductions for the next 7-10 years.   
 And be without a mortgage at home!

 I should note that the tax savings seem to work in my favor as I earn (& report - I can go full doc) nearly 1/3 of my income in cash as a freelance musician in addition to the rental income.   (Worry not - I'll speak with an accountant as well!)

 What do you think - am I dreaming folks?   If this sounds like a poor idea,  I'll certainly look into a 15/20-year refi on  my primary residence and count my blessings!

Thanks a lot & happy new year!

2

It is a decent plan, but you could make that 163K work a lot harder for you in ways other than paying off your mortgage. The 5.5% rate on the rental is a fantastic rate. After taxes your effective rate is below 4%. You could take that 163K and put it in an e*trade account making 5% and you would keep the arbitrage for yourself. Now 1% is nothing, but it just illustrates my point. I would just refinance the primary residence at a lower rate. You could easily drop that rate almost a full point. Then refinance the HELOC on the rental (not easily done nowadays) and make that money work for you. Using your numbers I don’t see how you will produce the income posted. Your payment on the 163K will be around +/- 1400/per month or 16.8K annually in payments. Rent will get you $10,800 annually. That leaves you in a deficit of $600 per month. Your on the right tack though. Hope this helps.

3

Christopher,

Thanks a lot.  

Yeah - the bigger my before/after spreadsheet got it became clear that if I were to pursue such a plan,  I would also build equity a great deal slower.  It also occurred to me that as I'm already itemizing,  I'm already able to write off the interest on all three mortgages.

I'm also not certain I could deduct all of the interest on a consolidated mortgage secured by an investment prop, so I think I will just refi my primary residence - if I can drop it a point or reduce the term,  I think it's a go!

Thanks again,