leverage

[Dan Wayne]

I'm refinancing a residential rental property, duplex, that currently has 11 years left on a 15 yr loan at 5%. I can get a lower interest rate at 15 yrs, but the monthly payment will still be a little higher than what I can rent the place for. I have read that it is best for this kind of property to take out a longer term loan (e.g. 30 yr) and have as little as possible of my own money tied up in the property. Should I go for the 30 yr loan instead of the 15? I'm interested in using the property as leverage to invest in other real estate, and I plan to keep it for at least 8 more years, possibly longer. It's easy to keep it rented.

[Account Closed]

Originally posted by Dan Wayne:

I'm refinancing a residential rental property, duplex, that currently has 11 years left on a 15 yr loan at 5%. ..... Should I go for the 30 yr loan instead of the 15? I'm interested in using the property as leverage to invest in other real estate, and I plan to keep it for at least 8 more years, possibly longer. It's easy to keep it rented.

I don't think I would look at more leverage, but it may prove worthwhile to look at switching from a 15 year note to a 30 year note if you can. If your rents aren't even paying for the mortgage you are producing very negative cash flows currently.

I would run the numbers on a 30 year note with the same principle to see if you can at least breakeven when considering property taxes, insurance, mortgage, repairs, vacancies and something for reserves. Sounds like you probably have nothing set aside for reserves currently which is a recipe for disaster at some time in the future.

Also if it easy to keep rented perhaps you are renting well below market. You may want to verify what the market rents are in your area.