I want more rental properties but wife want a SFH ?
Hello, BP.
Me and my wife currently have 2 properties free and clear.
1 Townhouse and a duplex. We live in the townhouse and currently renting the duplex.
Personally, I want to refi both properties and take the cash and buy a multi family property. Live in 1 unit and rent out the others.
My wife want to refi both properties and take the cash to buy our primary residence so it could be free and clear. In that space she says ill have my 2 rental properties and she'll have the free and clear primary home she always wanted.
My argument is "but what about scaling up to get more properties to offset out monthly expenses ??" Financial freedom.
Ultimately, I want my rental property buisness leveraged through the bank and my primary residence free and clear. This lifestyle idea is great for me and what how I would like to live.
With all this being said. I think it would be fair for both of us if we decided to refi both properties and take the cash out. Use the cash to purchase a our primary residence, that way ill have my family in a home. But take out a HELOC on the primary residence incase a rental property deal pops up I am able to purchase it cash, then refi to use the to pay off the HELOC. In this case, we're able to scale up and also have the free and clear home as my wife want.
Is this fair and I am explaining this right ? am I missing something ?
Originally posted by @Joe Splitrock:
@Isiah Ferguson financially speaking, it will cost you more if you pull the money out of the rental properties.
- Closing costs on two different loans versus one loan
- Better interest rate when financing primary residence - up to point. Plus lower down payment
- No interest deduction on the rental property loans. Money follows use of the property, so you can't deduct the mortgage interest against the rental property income, because it was used for your primary residence.
All that being said, you have to keep your wife happy, so I understand sometimes that means making emotional decisions versus logical decisions.
Here is another idea. Mortgage your new home at a low rate. Use all your extra income from the rental properties to make extra principal payments on your primary residence. You can show your wife mathematically how quickly you can pay off your home.
Let's say you can show your wife that your primary can be paid off in 5 years so you are totally debt free in five years. Then you can save up cash quickly and buy more rentals. Or save up down payments and finance more.
You are in a great position, so I don't think there is any wrong answer. Just don't feel like you need to take on tons of debt to move faster. Moving slower on solid ground is a good strategy too.
Thanks, slow and steady when the race sometimes.
"Here is another idea. Mortgage your new home at a low rate. Use all your extra income from the rental properties to make extra principal payments on your primary residence. You can show your wife mathematically how quickly you can pay off your home."
This strategy you mention is definitely another option to consider. hmmmm options, options, options. I guess these are good problems to have.
Isiah, I always try to slow down and consider my wife’s opinion on things as she may have insight I haven’t considered. That said, I think you both have valid reasons for the approach you want to take and if you sit down and talk through your positions and the why’s behind it with a willingness to compromise she may be willing to move in your direction also.
I agree with your desire to move into the MFU space. I also think if you have the option to obtain a primary with low or no DTV it can offer a sense of security, so long as you secure that home in such a way as to insulate it from lawsuits such as a trust with the rentals in a different corporate entity(s).
I would also look at what the houses you are considering buying sold for at the bottom of the market during the crash. The next bottom will likely be somewhat above that so, if you do decide to finance, you could limit the financed amount to that amount limiting the likelihood of finding yourself underwater and then also consider a 10, 15, or 20 year note for a faster payoff for her. There are so many different ways for both of you to get what you want especially if you each delay how quickly you get it just a little. You just have to be receptive to each other, open to compromise, and willing to be a little creative.
#2 General Landlording & Rental Properties Contributor
As stated the debate about paying off properties, rental or personal, will rage on for ever.
If the false security that comes from owning something is your primary goal/concern in life you pay off. If your goal is to invest and grow your own personal wealth to the maximum then you force your money to work for you as opposed to you working for it. Money has very low value if it is not used to it's maximum. You can pay a mortgage down or off there by saving the equilivant of the prevailing interest rates or you can make it earn's it's keep at 2 or 3 X the return. On one side you have the attitude that if you do not own it you will lose it and on the other that generating maximum returns, like everything in life , requires a certain amount of controlled risk. Neither side will be swayed through logical discussion.
It boils down being able to fully understand the value of money combined with a indivulaes personality which is either restrained by fear or driven by desire.
Originally posted by @Marcus Johnson:
@soh tonka
Again what you fail to calculate is risk into your matjematics. If everything goes perfect leverage always comes out ahead. But if life takes a bad turn you could lose everything. This why a paid off mortgage is a guarenteed return. You’re just speculating that nothing bad ever happens in life. As for a tax right off being the reason you have a mortgage proves that people can’t do simple 1st grade math. If you pay 10k in interest to the bank, at tax season you don’t get to write of 10k you only get to write off your tax bracket % which turns out to be $2500 in most cases. Not such a great deal.
For me I’m sonewhere in between with the risk = reward calculation. It’s served me well and. Can’t wait to have all of my properties paid off someday. I’ll sleep much better. The borrower truly is slave to the lender.
A couple of thoughts on this -
- Everything doesn't have to go "perfect". You just have to control for and factor in risk as you move forward. That might mean greater cash reserves, rehabs on the front end, selling marginal properties, whatever. If you are at risk of losing everything for anything less than a tsunami of catastrophe, you were over leveraged to begin with.
- The tax advantages cannot be considered in a vacuum, but only in conjunction with everything else. Interest+depreciation+repair+etc minus rent can leave you in a negative tax condition, which could (and often is) of greater financial benefit than standing pat with locked-up equity *provided* the equity leveraged to create the interest (i.e., the mortgage on your rental) is used to make more money. If you're going to take out a mortgage to scuba dive in Fiji for 6 months, that's dumb from a financial point of view, but if you're going to pull equity at a 5% interest rate, which may end up effectively being 2-4% after tax benefits, and reinvest that in a 10-20% ROI, that's pretty smart from a financial point of view. If it were legal, people would be doing it all day long in other investment instruments.
- You don't get any rewards for leaving equity locked up in a property.
- A paid off mortgage on your personal residence is not a return at all but a liability, at least until the point you sell and that assumes appreciation that outpaced inflation. You can argue that you have to live somewhere anyway, so you're saving the rent or mortgage costs, but technically you could live under the bridge or in a tent or in your car for free/virtually free, so that's not entirely accurate.
- You get all this already because as you admit you're somewhere in between, which is the smart place to be :) I'm right there with you - most of my properties are F&C, but I also understand that I am trading return for lower levels of aggravation - i.e., my investment doesn't require as much of my time & energy as it would if I wanted greater returns. Having no mortgages, aside from not having to schedule the payment every month (which is no big deal, I have autopay at my banks), also means I don't have to charge maximum rent, be hyper-vigilant about vacancies, etc. In other words, I get to be a lazy investor/lazy landlord. That's perfectly fine to me, because a) I have a day job, and b) I'm not 25 any more and don't want to work that hard.
- I don't consider myself a slave to anyone. If anything, my tenants are the slaves to the lender, because they're paying off the mortgages, not me. I only have properties that have so much cushion that I could rent them for 50% less than market rates & they'd still easily be covered and generating cash flow.
Another point to consider is this... I think of all my rentals as a forced savings/retirement account. Approximately 30 years (depending On loans) from now they will be paid to zero balances and I will have the equity to sell or refinance as I please.
Just ten properties and in most places you’re looking at well over $1m for retirement. The more properties you can accumulate then the larger that “savings account” will be 30 years from now.
Even better is that I’m not contributing anything to these savings accounts, rather my tenants are doing that for me (roughly speaking, let’s not get into the weeds here).
Point being, give me all the leverage and properties I can find and my retirement nest egg only gets larger incrementally. If you look at it from that perspective then even if I’m losing $50/ month on a property after debt and capex reserves I just happen to be “contributing” that money towards my savings.
Now when you consider that my goal is $250 positive cash flow per unit per month after debt and repairs/ect, I get the double benefit of future savings and immediate cash flow.
Then you just overlay all the qualifying real estate underwriting criteria to make sure you a have a deal and mitigate risks accordingly.
If someone looks at it that way it’s almost hard not to acquire as much real estate as possible regardless of debt levels.
Originally posted by @Derek Carroll:
Another point to consider is this... I think of all my rentals as a forced savings/retirement account. Approximately 30 years (depending On loans) from now they will be paid to zero balances and I will have the equity to sell or refinance as I please.
Just ten properties and in most places you’re looking at well over $1m for retirement. The more properties you can accumulate then the larger that “savings account” will be 30 years from now.
Even better is that I’m not contributing anything to these savings accounts, rather my tenants are doing that for me (roughly speaking, let’s not get into the weeds here).
Point being, give me all the leverage and properties I can find and my retirement nest egg only gets larger incrementally. If you look at it from that perspective then even if I’m losing $50/ month on a property after debt and capex reserves I just happen to be “contributing” that money towards my savings.
Now when you consider that my goal is $250 positive cash flow per unit per month after debt and repairs/ect, I get the double benefit of future savings and immediate cash flow.
Then you just overlay all the qualifying real estate underwriting criteria to make sure you a have a deal and mitigate risks accordingly.
If someone looks at it that way it’s almost hard not to acquire as much real estate as possible regardless of debt levels.
Did you put your rentals in LLC or your name? I keep reading about that topic of LLC but don't quite understand the benefits.
#2 General Landlording & Rental Properties Contributor
The greatest disadvantage of paying down a mortgage that results in retirement savings but very little else along your path through life is dying before you cash out. This will bite many appreciation speculators that refuse to cash out due to the fact that their properties are still appreciating. Some even supplement the properties monthly to carry the expenses. A car accident, cancer or heart attack make a life time of hoarding cash in a property a total waste.
The kicker is no one wants to believe it will happen to them.
Life is often too short to work for nothing except retirement.
Originally posted by @Ola Dantis:
@Isiah Ferguson First, congrats on owning these two properties free and clear.
Now, when it comes to the Mrs., we as men need to show wisdom. I think she has a point of owning your primary residence free and clear (although many can debate that all day long), and you also have a good foresight of growth: scaling up quickly.
However, since marriages are meant to be about compromises, why don't you guys meet half way.
- Cash out refi both assets, use half of the proceeds as DP on the primary residence.
- Use the other half to buy your multifamily asset.
WIN-WIN 😃
In these cases, there shouldn't have to be a right or wrong answer, you know.
Hope this helps, Isiah. Goodluck. Thanks! - Ola
There might be a few people around here who object if you are insinuating men need to show wisdom any more than women do, but your overall point is spot on! A compromise here seems like the perfect solution.
Buy rentals with enough cash flow to cover your primary residence mortgage. That way you are "mortgage free", while at the same time you have assets paid by tenants and your wealth accumulates. If you have extra money, you can always add whenever you desire and can to your mortgage payments. Plus, you enjoy the partial asset protection provided by having notes on both your residence and rentals.
In time, you'll have your residence paid off and the rentals paid off and providing income. Compare what with paying just the residence mortgage and then buying rentals (will probably put you 15-20 years behind).
Keisha Clegg if that is your name, please take your scam elsewhere. Adult conversation is going on. Thanks.
In my opinion having a primary residence is a luxury and not being optimized as a true investment which you seem to be on that same page. For the sake of you having a healthy marriage ;) it seems like a fair compromise if the numbers make sense. Ensure to not leverage too much on the property's!