My AGI is over 400K and am ~10 yrs from retirement
Bought a home 2 yrs ago, which is currently with 400k loan at 3.75% for 30 yrs and second loan as a line of credit with 122k at 6.24
Have two rentals bought about 9 and 7 yrs ago. Both were brand new at purchase. Both have currently a ~120k balance at 5.8% on 30yr fixed loans. One rental generates over $200 a month and is valued ~80K above purchase price. Second home rent is barely breaking even and home value is nearly same as when bought.
Have cash and vested stock and I am wondering if it is better from a tax and overall financial perspective to pay off the line of credit vs paying off one of the less advantageous rentals? Or should I try selling the second home as it is not very cash flow positive? Or should I keep the cash to purchase more rentals when the next correction hits?
@Frank Rodz Welcome to BP! You have a lot of options here. And I am sure you will get a wide range of advice.
Is your goal to have properties paid off when you retire in 10 years? Or are you ok with having debt in retirement?
Also, my focus and recommendation to a lot of folks is to use a conservative amount of leverage and try to max out having 10 conventional loans with the 15 or 30 year fixed rate terms. Rates are still low and will most likely climb, so I suggest using long term debt.
With the market being hot right now, it might make sense to sell the rental that is a loser. Then reinvest that money into a better performing property.
Then lastly, with your AGI, you can probably qualify as an accredited investor. Do some research and look at investing in larger scale deals.
Hi @Frank Rodz ,
I own a portfolio of single-family rental properties. I would need a little more information from you in order to give you my opinion/advice.
1) rental property number one: generates $200 a month and has increased 8K over the purchase price. That could be a decent return or a bad return, depending on how much the property originally cost, and where it is located (i.e. what the expectations are for the future).
2) rental property number two: barely breaking even and home value not increased. This one sounds like you most likely need to cut it loose, but again can't tell just from the description. For example, if you are seeing tremendous year-over-year appreciation in that area that has finally brought you back to even from when you purchased, and it looks like it may continue, it may be worth it to hang on.
3) pay off your line of credit at 6.24%. Others will probably disagree with me, but in my opinion I would start with this. This is essentially a risk-free 6.24% return, which is impossible to get in real estate or any other market. Also, retirement is coming up for you relatively soon, and you will need to get your debt down at some point since you will no longer have W-2 income.
Its a good problem to have: income, cash and the common sense to research the best approach before making a rash decision!
Your focus is TAXES! 35% or 39% this year and 35% next year. Oregon has a 9.9% state tax. With a possibility of getting hit with AMT.
You have approaching a 200k a year tax liability. Two hundred a door either way will not move the needle. Deductions are the only thing that matters. mortgage interest, depreciation, etc. You are in the unique position of, "losing money" on a property may turn out to be more profitable than if you were making money.
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