Bloomington, IN · Member since 2016 · 4 posts · 0 votes
So we owned and lived in a house for 5 years. Last fall we bought a new one and turned the old one into a rental. The rental is worth 160000 and we owe 55000.
While doing our taxes we realized that we won't ever surpass our standard deduction therefore won't really qualify to deduct mortgage interest on our personal residence. We obviously can deduct mortgage interest on the rental. It seems like I should do a cash out refinance on the rental and pay down my personal mortgage? Is that crazy? It seems like a big savings but I might be missing something
Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
7y
@Jason Kimery Not crazy at all. That's smart. And after you pay down the mortgage on your primary, you can get a HELOC. That way you're just as liquid as before. You won't be paying interest on it while your not using it, and you'll be ready to pounce on the next deal that crosses your path (or better yet, that you hunt down).
Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
7y
@Jason Kimery Not crazy at all. That's smart. And after you pay down the mortgage on your primary, you can get a HELOC. That way you're just as liquid as before. You won't be paying interest on it while your not using it, and you'll be ready to pounce on the next deal that crosses your path (or better yet, that you hunt down).
@Jason Kimery Not crazy at all. That's smart. And after you pay down the mortgage on your primary, you can get a HELOC. That way you're just as liquid as before. You won't be paying interest on it while your not using it, and you'll be ready to pounce on the next deal that crosses your path (or better yet, that you hunt down).
Correct...and, let's take it one step more. The mortgage payments for both the rental and the house you live in, are combined into one...the refi from the rental house. So, as long as your rental house remains cash flow positive, this also means your tenant is not only buying the house they are living in (your rental) from the rent payment, but they are also buying the house you are living in...for you.
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
7y
@Jason Kimery
My only question would be at what rates? Generally a live in will be a lower mortgage rate than your rental will get you. Crunch the real numbers and see if it works.
Wholesaler · Dallas, TX · Member since 2017 · 306 posts · 133 votes
7y
Hello Jason! There are several things to consider. Is the rental interest rate higher or lower than your house? Will you still have a positive cash flow on the rental when you refinance? You can pay down your house loan that is part of refi loan with a possible lower interest rate than you're currently paying and will not have a no much larger payment that you may not he a able to afford. I do lynot know if the rule is by ppppppppState, you can only retirement at an 80% of total value
Wholesaler · Dallas, TX · Member since 2017 · 306 posts · 133 votes
7y
Hello again Jason! I wasn't quite finished. Be comfortable with demand for your rental house before you refi. As pong as you have positive cash flow there's nothing wrong with debt. You might want to spend any refi somewhere else if you have a decent cash flow. Just pay down on any debt that needs to be eliminated that has a higher rate or you can't deduct.
So we owned and lived in a house for 5 years. Last fall we bought a new one and turned the old one into a rental. The rental is worth 160000 and we owe 55000.
While doing our taxes we realized that we won't ever surpass our standard deduction therefore won't really qualify to deduct mortgage interest on our personal residence. We obviously can deduct mortgage interest on the rental. It seems like I should do a cash out refinance on the rental and pay down my personal mortgage? Is that crazy? It seems like a big savings but I might be missing something
It will probably take you 8 years to break even doing this. That's a long time to wait fore a return on the costs and pain a refi is.
Say you pay $2500 per year in interest on your $55k primary. It may reduce your tax bill $500 deducting that, at most.
A refi will cost you $3800-$5000 most likely. That divided by your tax savings ($300-$500/yr) is the number of years it takes before it has a return.
Not nap-friendly or worth your effort IMO. Chase something with a higher return on costs and higher return on time and effort. But your thinking process is correct! We are creative pivoters.