Paying off rentals using other rental equity.

2 Replies

Hi BP community, i am seeking an advice on what the best course of action to take on my rentals. 

I came across the mortgage company amerisave and they're able to refinance my investment properties debt at 3.125% apr.

Option A: This includes 3 rental loans with rates from 3.75% to 4.6%. I thought i was getting 1 loan umbrella with 3 properties but instead what i found out what they were going to do was, pay off 2 of my rental properties loans using the equity of 1 rental property with the highest equity.

the total amount of principal & interest i pay right now between these properties is $1779 per month (rounded up) and if i do this refinancing, my mortgage on 1 rental with alot of equity will be $1457 per month (rounded up) while the other 2 rentals are paid off. This would give me an additional $322 per month of extra cashflow at the end of the day. BUT on my 1 rental where the equity used to pay off the other rental loans will have a -250 cash flow per month.

Option B. Leave the other 2 rental properties debt alone, pull some money out of the rental property with big equity with the same monthly payments and cashflow (except i'm back to 30 yrs of paying the loan). Use that money to buy more properties. 

what would be the best course of action here? Will there be a big tax difference if the other 2 rentals are paid off while one is negative? 

I would like to thank you in advance for your insight and help.

I'm not an accountant, but I think you will need to look back at last year and see how much the mortgage interest deducted from your rental income and compare that to what it would look like if two properties did not have that interest and how much the third property now has. It sounds pretty complicated and I think you will have to write it all out and compare last years to what next years would look like, or just call your accountant and ask them to evaluate it for you.

If you already have a lot of loans and want room for more loans it would make sense to have two paid off.  Does that factor in at all?  

How long have you had the properties and are you currently in a growth phase where you want to acquire more properties or are you in a stage where you want to focus  on paying them off and having stable income, for example have you already paid 15 years and want them paid off in 15 years because you plan to retire at that stage?  

There are really so many personal decisions that will influence that choice on refinancing.  

@Angel Ginnett

I appreciate the insight. I currently only have 3 loans, so i have room for loans before i hit the limit. And right now i am at the growth phase of my portfolio.

I am torn between the strategies because of the potential increase in cash flow but it would take me around 10 years just to breakeven on paying off the other 2 loans. Although the extra cash flow will help me save faster to acquire new properties.

The cash that i am cashing out, i plan to invest into more on investment properties.

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