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Was just wondering, with the mortgage rates going historically low, is there any benefit of refinancing investment property?
I recently bought an investment property with 4.25% on a 30 yr mortgage and 25% down. Besides the usual mortgage payment, I do pay a little extra every month to nearly equal the amount i would have paid had I taken 15 yr loan.
So, is there any sense in refinancing to 15 yr mortgage? I am worried that it will decrease my total mortgage interest amount which is a deductible on my taxable income. So with less deduction on 15 yr mortgage, I will end up paying tax on rental income, which will further reduce my cash flow.
I agree with you. The main idea was that if I am able to save some more money, then is it better to purchase another investment property or use this money in refinancing the previous investment property? I guess it is better to invest money in another investment property to be able to get more cash flow. With refinancing the previous property, I not only end up decreasing my cash flow with higher 15 yr mortgage payments, but also end up paying more tax on rental income, and lose the opportunity to increase my investment portfolio.
You know you only get back a fraction of the amount you deduct right, it is not a dollar for tax credit. Spending $1 just to get back $ 0.30 is not good reasoning.
I agree with you. But on the other hand, It may not be a good idea to reduce the cash flow (on top of what already gets reduced by refinancing to 15 yr term) further by paying any tax on rental income, unless one is deciding to sell the property in a few years. Rather, the same money saved can be used in purchasing another property and if possible get a 15 yr term on it.
I agree with you. The main idea was that if I am able to save some more money, then is it better to purchase another investment property or use this money in refinancing the previous investment property? I guess it is better to invest money in another investment property to be able to get more cash flow. With refinancing the previous property, I not only end up decreasing my cash flow with higher 15 yr mortgage payments, but also end up paying more tax on rental income, and lose the opportunity to increase my investment portfolio.
It all depends on your risk tolerance and what you expect to get out of more property. Run the numbers based on the price ranges and rent ranges of the properties in question, as well as an allowance for repairs, vacancy, etc.
It is counter productive to spend 2016 dollars to get 2032 dollars. The cash flow you receive then is the cash flow you give up today, discounted by inflation. There is no benefit to prepaying a mortgage. A paid off house does not receive more rent that a financed one. A paid off house does not appreciate more than a financed one.
[quote=honobob;44595110]It is counter productive to spend 2016 dollars to get 2032 dollars. The cash flow you receive then is the cash flow you give up today, discounted by inflation.
Didnt quite understand this sentence. Do you mean that it is not wise to spend dollars to refinance to 15 yr terms to be able to get more cash flow after the mortgage ends after 15 yrs? I agree. Even that cash flow after 15 yrs will reduce as it will be subjected to rental income tax with no mortgage interest deduction. So, one loses on the cash flow now by using cash to refinance and then loses later by paying tax on rental income.
It is counter productive to spend 2016 dollars to get 2032 dollars. The cash flow you receive then is the cash flow you give up today, discounted by inflation.
Didnt quite understand this sentence. Do you mean that it is not wise to spend dollars to refinance to 15 yr terms to be able to get more cash flow after the mortgage ends after 15 yrs? I agree. Even that cash flow after 15 yrs will reduce as it will be subjected to rental income tax with no mortgage interest deduction. So, one loses on the cash flow now by using cash to refinance and then loses later by paying tax on rental income.
Exactly! The ONLY reason you are getting more cash "faux" is because you are being handed back the after tax money you sunk into the property 15 years earlier.
With todays rates you will probably be best to reset all mortgages to 30 years as long as you can do that relatively low cost. Fifteen years down the road you may want YOUR money back but the bank can make it VERY expensive to get your own money back if at all.
Everything I've read about being a realestate investor is cashflow is king. If you want to refinance I'd look at a "no cost" refi. See if you can go from 4.2% to 3.7% with only the cost of the appraisal. You'd be better off putting the cost of the refi and the money you're saving each month toward another property. But to each their own and this totally depends on your goals as a long term realestate investor.
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