Prepay mortgage on rental property with negative cash flow?

5 Replies

Hello everyone

I have my primary residence in NYC that for personal reasons I will need to convert to a rental, since I am moving out of state. I have done the calculations and I will come to a negative Cash Flow of about 850$/month. I am not considering selling the place but I bought it 2 years ago and NYC market has been pretty flat ever since.

I have an outstanding balance of 460k$ on a mortgage at 4.3%, which is 30 year fixed. Currently I'm amortizing 750$/month of principal, which will grow over time.

I have two other rental properties with positive cashflow of 200$ each.

What considerations should I take when checking if I want to prepay the mortgage on my negative cash flow property? For the time being I will be able to easily cover that cost.

I have no intention of getting into a new property anytime soon and any other investment vehicle, stock market, will probably not yield over 4% since it seems we are hitting a tipping point.

You're only consideration should be which real estate agent you want to use to sell. Negative cashflow of $850 a month is way to high unless you believe future appreciation to be incredible. That's not investing though, that's speculating.

Prepaying your mtg won’t lower your monthly just pay it off earlier on the back end if you keep it that long and move your payments further down the amortization schedule, with more of the payment going to principle.

$10k/year in negative cash flow verses your appreciation....your gamble and your call.

You should sell. If you hold on to it, you will lose $850 every month it is occupied. You will lose more when it's vacant and you have to cover utilities, particularly in a colder climate. This means you'll probably lose at least $10,000 a year.

You don't say how much equity you have in the home but I would seriously consider selling it, even if you have to take a loss. If you put 3% down and you've owned it for a few years, you should be able to keep the losses to a minimum. It's probably much cheaper to sell than to hold onto it and potentially lose far more.