what to do with an extra house high interest rate/mortgage?

Question

Hello everyone! Interesting question as I am just starting out with real estate and would like to use an extra house i already own for rental property. 4 bd, 2 bath 2000sqft single story, 2 car garage, tract home in a nice neighborhood in Gilbert, AZ. i've compared comps and looks like similar homes renting for about $2-2400/month (not including utilities). we bought the house originally for family to live in and be close by. the mortgage is $3700/month. purchase price 550K in 2023 with 5% down. we painted and put new laminate tile/carpet costing $8K total.

Would you keep it and do cost segregation studies to get some tax benefits? or sell it? I estimate we would make at the most 10K if sold today (does not include transactional costs. Do I refinance? short term, long term rental potential? I would like to keep it as its in a good area and I feel price will appreciate over time.

thanks!

Would you keep it and do cost segregation studies to get some tax benefits? or sell it? I estimate we would make at the most 10K if sold today (does not include transactional costs. Do I refinance? short term, long term rental potential?  I would like to keep it as its in a good area and I feel price will appreciate over time.

thanks!

Joe Piccirello · Answer

Hey Amanda. Gilbert numbers are the whole story here. At about $3,700 PITI vs about $2,200–$2,400 market rent you’re looking at roughly $1,300–$1,500/mo negative cash flow before vacancy, maintenance, and utilities if you cover them. Cost segregation is a CPA/tax move; it doesn’t fix the payment gap by itself.

If you want to keep it, the real fork is the loan: a rate-and-term refinance (or buydown if you have cash) only helps if it meaningfully drops the payment into the rent band. Cash-out usually makes the payment worse. LTR at those comps is the cleaner underwriting story; STR can show higher gross but insurance, furnishing, and management eat a lot of that in the East Valley. Model both before you commit.

Selling for about $10k equity before commissions/closing costs is often a wash or a small loss, so “sell to stop the bleed” only wins if you don’t want the carrying cost while you wait for appreciation. Happy to walk the payment math / refinance vs hold tradeoffs if you share rate, remaining term, and roughly how much cash you’d put toward a refi.

Fulton Abraham Sanchez · Answer

@Amanda Bisla, hi. I wouldn’t let tax benefits justify a property with weak cash flow.

First compare the true monthly loss against the long-term appreciation potential. Cost segregation can help on taxes, but it won’t fix negative economics.

Run the numbers on hold, sell, and refinance based on total return—not just the deduction.

Aaron Zimmerman · Answer

You'd be losing over $1,300 just using PITI if long term rental so that's not super viable. Could it work As a medium or short term rental? If no, I'd sell. You'd likely need at least $4,500 or more in rents just to break even

Patrick O'Sullivan · Answer

The tax benefits are real but separate from the problem. Start with the true monthly loss after vacancy, repairs, and CapEx, not just the mortgage minus rent. Once you have that number, compare holding, converting to STR/MTR or LTR, and selling side by side. Appreciation and a future refinance are assumptions, not a plan.

Jason Malabute · Answer

Amanda, with roughly $3,700 going out each month and market rent in the $2,200 to $2,400 range, I'd be careful about holding this as a long term rental purely on an appreciation thesis. Start by working out the real monthly shortfall after taxes, insurance, vacancy, repairs, capital expenses, and management, because if it is already negative before those items the actual gap is usually wider than it first looks. From there I'd line up three paths side by side: sell now and measure the true after tax proceeds after commissions, closing costs, and any gain; keep it as a long term rental and calculate what you'd realistically need to feed it each year; and only consider short term or mid term rental if local rules, the HOA, insurance, and genuine demand actually support it. On the refinance question, I wouldn't do it just to shrink the payment unless the rate and closing costs meaningfully improve the economics, and I wouldn't build the whole plan around a refinance that may or may not materialize later. On the tax side, once you convert it from personal use and place it in service as a rental, depreciation begins, and the depreciable basis is generally tied to the lower of adjusted basis or fair market value at conversion, so document that carefully, and keep in mind that prior depreciation matters if you eventually sell. The bigger question is whether this works as an investment from today forward, not whether you already own it or believe Gilbert will appreciate. The exact answer depends on your specific numbers and facts, so walk through it with your own CPA or tax advisor.

Ashish Acharya · Answer

Amanda, with a $3,700 monthly mortgage and market rent around $2,200–$2,400, I’d be very careful about keeping this as a long-term rental just because you expect appreciation.

The first thing I’d do is calculate the true monthly loss after taxes, insurance, vacancy, repairs, CapEx, and management. If the property is already negative before those items, the gap could be much larger than it looks.

I’d compare three paths side by side:

• Sell now and measure the actual after-tax proceeds after commissions, closing costs, and any gain.
• Keep it as an LTR and calculate how much cash you’d realistically need to feed it each year.
• Evaluate STR or mid-term rental only if local rules, HOA restrictions, insurance, and realistic demand support it.

Sell now and measure the actual after-tax proceeds after commissions, closing costs, and any gain.

Keep it as an LTR and calculate how much cash you’d realistically need to feed it each year.

Evaluate STR or mid-term rental only if local rules, HOA restrictions, insurance, and realistic demand support it.

On the refinance question, I wouldn’t refinance just for the sake of lowering the payment unless the rate and closing costs materially improve the economics. If your current loan is already high-rate, it may make sense to revisit later if rates improve, but I wouldn’t build the entire investment thesis around a future refinance.

From the tax side, if you convert it from personal use to a rental, depreciation begins once it’s placed in service. The depreciation basis is generally tied to the lower of adjusted basis or fair market value at conversion, so I’d document that carefully. If you later sell, prior depreciation also matters.

The bigger question is whether the property can become a good investment from today forward, not whether you already own it or believe Gilbert will appreciate.

Feel free to DM me. I’d be happy to send over a few resources that might help you compare the sell, LTR, and STR options.

LaTarence Dunbar · Answer

I’d be interested in taking a closer look at this before you decide to sell. The negative cash flow at the current mortgage payment is definitely something to work through, but if you like the location and believe in the long term appreciation, there may be a way to structure it differently rather than giving up the property.

I’m interested in investing in opportunities like this and would be open to discussing a potential partnership or investment structure if the numbers make sense. Feel free to DM me. I’d be interested in seeing the property details and running through the numbers with you.

Joseph Zimmerman · Answer

I run my custom P&L on each of my two Chicago rentals every month, and the mortgage payment sits on it split into principal and interest. Principal moves money onto my own balance sheet, so I read that piece as savings. Insurance and my condo's assessment get their own lines, and both only hit once or twice a year.

On your house, a $1,300 to $1,500 monthly gap is roughly $16,000 to $18,000 a year out of pocket, against about $10,000 of equity before closing costs. Your $8,000 of paint and flooring belongs on a capital line. Cost seg is a question for your CPA.

Noah Corwick · Answer

Hi @Amanda Bisla. Tough situation to be in for sure. That's a lot of negative cash flow.

You mentioned that it was bought with the intention of using it for family. Because of that, is it furnished? If so, you could see what it would look like on the STR or MTR market. It being a MTR with 3-6 month minimum leases could be a nice sweet spot for you if being in the STR game is unappealing. You can rent it at a premium, not have to get into the management minutia of a short term tenant and have flexibility to pivot with shorter leases. Obviously the comps need to show if this is even possible though.

For either scenario, I'd also explore not hiring a property manager and just managing it yourself so you can keep as much money in your pocket as possible.

If the comps don't check out or the STR/MTR routes don't make sense, it might make sense to stop the bleeding and sell it.

what to do with an extra house high interest rate/mortgage?

what to do with an extra house high interest rate/mortgage?

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