Recast or Invest Elsewhere?

[Graham Watts]

I am considering recasting the mortgage on a rental condo I own and rent.

When I purchased the unit about 28 months ago, I planned to live there long term and didn't consider cash flow and renting. Due to an unexpected opportunity to travel for work, I now rent the unit at a slight loss per month. The rent covers the mortgage, insurance, and HOA, but after paying for property management fees I am losing ~$200 per month, and have little for CapEx, vacancy, and repairs, although it is newly remodeled.

Based on my research I know that it is not smart to rely on property value appreciation to justify the negative cash flow, so I have researched ways to try to improve my cash flow:

• Increasing rent is not an option
• Property management is necessary as I live out of the country
  Refinancing doesn't seem very advantageous, my mortgage is a 30 yr fixed rate at 4.375% and the rates in Denver only look slightly below that for attached homes
• Recasting the mortgage seems like a decent option

Using calculator it looks like I could go from Principal and Interest of $1,541.79 down to $1,317.05, for a monthly reduction of $224.74, achieving a slight cash flow positive, if I invest $40,000. This is an annual savings of $2,696.88, which is a 6.74% return per year.

If I am considering everything I should be, this means I should only recast if I don't think I can invest the $40k somewhere else and achieve an ROI above 6.74%, correct? What else should I consider?

[Mike D'Arrigo]

@Graham Watts I'm not a believer in banking on appreciation but in the Denver market, it's probably a pretty safe bet. Personally, I would say that if you can get it at least cash flow neutral then I would hold on to it and take the appreication.