Posted by Brent_IL on September 22, 2003 at 22:42:06:
The prime may go up, but it will probably go up gradually. I’m not real big on straight L/O’s, but this might be the way to go to avoid recapture. Maybe you could go to $125,000. If you get an option payment of $2,000 or more, you’d have your repair money back.
I?d stockpile the $300 a month instead of paying down the mortgage. If rates zoom up, use it for the loan payment or to pay the taxes if you sell. Right now, paying it on the loan would only give you a return of .15% over prime and that?s locked up in the house until you pay for its release. Should the new tenant move, it won?t be available to help. If you look around, you might find a better L/O or L/P that you could get by paying an extra $300 a month that you?ll have from the cash flow of your current rental property.
Newbie – what have I gotten into? - Posted by swisemer
Posted by swisemer on September 22, 2003 at 22:15:40:
Hey, I am so new to this, and now I think I’m in trouble – I need some advice! I got a rental house about 1 year ago (as result of my divorce), along with a tenant. Now tenant moved out, and I have put about $2,000 of my own money into the house (for turnkey and repairs). The loan is a HELOC, at .15% over prime for the entire amount. A realtor did a CMA on it about 6 months ago, and the value was $116,000. My loan is at $107,000. If I sell it, I will make nothing, and will lose $, especially with depreciation recapture. If I continue renting it (if I can find a renter, that is), I can pay about $300 towards principal each month. This is good, but who knows when the prime may go up substantially. The truth is, I don’t have the inclination to go thru the tenant screening and be a landlord. Should I (a) sell the house at a loss for whatever I can get (keeping in mind the prime will go up), (b) find a renter and keep paying down the principal (even if I have to hire a property manager)? I would like to make some money, especially after I’ve had to put $2,000 into it. Thank you for you help.
I’m wondering why you would have the total balance of that loan in a HELOC…Why wouldn’t you turn that loan around and take advantage of some of the lower rates out there right now? Even a nonconforming first mortgage should be at a lower rate meaning a smaller payment meaning a higher positive cash flow. If your LTV isn’t there, you’d probably want to consider a piggyback 1st and second which would still increase your cash flow…But that’s only if you wanted to hold onto the property of course.