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Pay off mortgage or not ????

224 19 October 28, 2017 at 01:22 PM
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mortgage on our house owed $110000 at 4% for another 20 years.
house is in both names.
I have a rental house in my name only ( paid off) where i get $700 a month rent.

I have a small pension of $700 month and my husband has a pension of $1700 month.

My stepkids think i should sell me rental home and pay off the mortgage on our house.

Can anyone advise me if this would be a good move.

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#2
I think you should keep the rental as income is coming in.
You want more, not less.
If I could own real estate, I would, just NY is crazy.
Are you having difficulties paying mortgage with living expenses?
Is there a reason stepkids would suggest that?
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#3
no we are ok at the moment paying bills but Im still working part time . the step kids think if we sell the rental we could pay off our mortgage. i know what you mean about NY I lived there for many years
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#4
Several more issues to consider, the first one is quality of life. Is having a rental property stressful or causing you to enjoy life less? Obviously if its a headache then look to get rid of it or to reduce the stress.

You mention stepkids and property titled in your name and jointly. Would you feel better about your personal financial security if you kept the rental? Most people do not want to plan for divorce but its an unfortunate part of life. Keeping the rental will ensure you always have income or a place to live.

Is the rental property a good investment? Is the percent return acceptable to you? I am not familiar with your market but $700 rent does not seem great for a property that you are saying could pay off a $110,000 mortgage. Does not mean you should sell, but it is something to consider.

If you sold the property and paid off your mortgage how much would that change your finances. You would lower your monthly expenses and lower your income. How much of a net gain would it be?
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#5
They want you to take an asset that is your's entirely and use the money to pay for a property that you are a 1/2 owner and they will inherit. Seems pretty obvious to me.

There is an old saying when something happens or someone wants you to do something:
qui benefacit animae

Who Benefits?
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#6
Besides the obvious who benefits, an income and expense analysis should pretty much tell you what to do.

1. The mortgage is at 4% interest and is tax deductible (at least for the present). So the effective cost of the interest you are paying there is probably something like 3%.

2. If the rental property is yielding more than 3-4% profit, then you you are better off keeping it. If not, then why bother keeping it unless you feel it will appreciate in value in the long run.

3. The rental property offers you the ability to take depreciation against the property and to take certain business expenses off your income that you otherwise might not be able to deduct without the business (such as internet bills, computer and office equipment used for the business, etc....consult your accountant).
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#7
Quote from komondor
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They want you to take an asset that is your's entirely and use the money to pay for a property that you are a 1/2 owner and they will inherit. Seems pretty obvious to me.

There is an old saying when something happens or someone wants you to do something:
qui benefacit animae

Who Benefits?
My thoughts exactly but they are good kids.
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#8
Thank you so much for all your input. I really appreciate you all.
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#9
I'd look at refi for the rental and buy two more rentals and increase your income.
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When the facts change, I change my mind.
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#10
Quote from ladyofengland
:
mortgage on our house owed $110000 at 4% for another 20 years.
house is in both names.
I have a rental house in my name only ( paid off) where i get $700 a month rent.

I have a small pension of $700 month and my husband has a pension of $1700 month.

My stepkids think i should sell me rental home and pay off the mortgage on our house.

Can anyone advise me if this would be a good move.
I hate to say it but I would talk to a CPA if I were you. There are a lot of variables that depending on your current overall situation could make doing something a lot more sensible than the alternative. When people, aka kids, suggest to do things like they suggested they likely aren't thinking of any tax benefit which again depending on your overall situation could be worth just as much benefit, if not more to what they're proposing.

Let's say for example that based on your income and other deductions it's not worth it for you to itemize. As a result you're essentially losing out on the benefit of the mortgage tax deduction if you're taking the standard deduction. Nothing huge but say it's a $4k deduction you lose the benefit of.

If your rental property is paid off and you're bringing in $700 a month and let's just say that you overall make $ you are paying tax on that.

If however you were to take a loan out on your rental property and use it to pay off your primary home mortgage guess what. Again, assuming your income isn't high, you would get to deduct the "loss" on the rental property against your normal income and you wouldn't be losing the benefit of the mortgage interest deduction for tax purposes.

Again, we're not talking about big dollars here every year but for combined over 20 years it could make for a decent chunk of change. This all kind of depends on how much your places are worth, your income, your other deductions, and I'm sure more that I'm not thinking of but this is what I immediately thought when I read your post. Wow, that sucks, the gal is paying tax on his rental income and losing the tax benefit of his home mortgage deduction more than likely. It's a double whammy that can easily be flipped around to where you get to deduct the interest as part of a loss if you can get it on your rental home and not pay the bank 4% a year on your primary home.

Property isn't a slam dunk but throughout history the have's have always owned property so I'm a fan of owning rental property. There is always risk and effort that goes with it but when you can get someone else to literally buy something for you that you can then one day sell as a sizable asset or pass it down to your kids why wouldn't you want to do that if you could!

Whatever you do, good luck!
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Quote from LivninSC
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I hate to say it but I would talk to a CPA if I were you. There are a lot of variables that depending on your current overall situation could make doing something a lot more sensible than the alternative. When people, aka kids, suggest to do things like they suggested they likely aren't thinking of any tax benefit which again depending on your overall situation could be worth just as much benefit, if not more to what they're proposing.

Let's say for example that based on your income and other deductions it's not worth it for you to itemize. As a result you're essentially losing out on the benefit of the mortgage tax deduction if you're taking the standard deduction. Nothing huge but say it's a $4k deduction you lose the benefit of.

If your rental property is paid off and you're bringing in $700 a month and let's just say that you overall make $ you are paying tax on that.

If however you were to take a loan out on your rental property and use it to pay off your primary home mortgage guess what. Again, assuming your income isn't high, you would get to deduct the "loss" on the rental property against your normal income and you wouldn't be losing the benefit of the mortgage interest deduction for tax purposes.

Again, we're not talking about big dollars here every year but for combined over 20 years it could make for a decent chunk of change. This all kind of depends on how much your places are worth, your income, your other deductions, and I'm sure more that I'm not thinking of but this is what I immediately thought when I read your post. Wow, that sucks, the gal is paying tax on his rental income and losing the tax benefit of his home mortgage deduction more than likely. It's a double whammy that can easily be flipped around to where you get to deduct the interest as part of a loss if you can get it on your rental home and not pay the bank 4% a year on your primary home.

Property isn't a slam dunk but throughout history the have's have always owned property so I'm a fan of owning rental property. There is always risk and effort that goes with it but when you can get someone else to literally buy something for you that you can then one day sell as a sizable asset or pass it down to your kids why wouldn't you want to do that if you could!

Whatever you do, good luck!

If the rental property is setup properly (and by that I mean as an LLC), then everything will flow through to the owner on a K1 (as either a loss or gain) anyway. Adding debt to the llc that flows through to the owner each year in lieu of the home is not going to improve the situation for anyone but the bank imo which gets a new loan to service and an opportunity to charge more\get more fees. It is robbing Peter to pay Paul as the saying goes. The interest on either loan is deductible as is the property taxes for both properties currently in their individual entities. If there is insufficient deductions to itemize personally, it would be irrelevant in an LLC corporation as the rental properties taxes and whatever interest should come off prior to the pass-through already. So in essence all you do is move the interest charge to the corp. It is not going to change the total gross income number (other than maybe lower it with higher interest rates since business loans are almost always more expensive than personal ones) nor is it likely to increase the total itemized deductions.

That said, there is no reason to take out debt or incur more of it. The bottom line is how much is the OP making off the rental property after taking into account taxes, insurance, maintenance costs, depreciation, etc. A question for a tax professional\accountant. If it makes a decent amount and more than her cost to support her home mortgage, then there is no reason to sell or refinance absent some other information we are not aware of imo.
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Last edited by YanksIn2009 October 30, 2017 at 01:53 PM.
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#12
Nobody, and I mean nobody ever became wealthy or increased their financial security, by paying off a low-interest mortgage.

If I sold the rental unit I'd hold onto the cash or invest it in something else before paying off the mortgage. I would much rather die owing a mortgage than not have enough cash to live on, and paying a little bit of interest on debt is well worth the security I'd have by not depleting my assets by 110,000 to be debt free.
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#13
buy more properties..paying off mortgage thats 1950's ..the rich got rich by investing. the rental is cash flowing putting $ in your pocket..if you do decide to sell make sure your getting at 10% wherever you decide to do
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#14
How Old are You?

Do you have money in the markets?

What are your taxes/insurance/average appreciation rate/maintenance on the rental.

With that price of a rental, It is most likely a tiny place worth maybe $50,000? If it is worth the $110,000 you owe on your house, you are NOT charging enough rent for it. Unless the number you mention is rent AFTER taxes and insurance.

But, going with just what you've said - you are renting a property worth over $110,000 for less than .7% of the value per month. That's not great. I don't think your money is best invested there. But, I don't know your age. If you are 60+, then you can't really afford to invest it in something like the market. Can you improve the rental rate? Borrow $10-15,0000 against the rental and upgrade it to make $1000 a month?

Definitely do NOT pay off a low interest mortgage, especially if you have income such as you can itemize and deduct the interest.
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#15
How much do you like your current house?

Assuming you're over 65, aother way to think about it is down-sizing. Keep the rental, sell the house, and purchase a condo or something in the 50+ community with cash. You have more liquidity and no debt. Then just live off the pension and social security income. The cash saved can be used for health related expenses or long term care insurance payment, assuming you have not much retirement savings to begin with.
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