I am seeking feedback on what to do with our home loan and our rental property. If I need to split the questions into 2 postings, let me know and I will do so. Some things have changed since my first investor post which require looking at our cash flow and long-term situation more closely. The details:
Primary home:
Value: approx 350-375k
owed: 229k @ 4.375. Term remaining: 22yrs, 2months
current payment (PITI): 1629.32
Rental Property:
Value: approx 575-600k
owed: 363k @ 4.25, 29yrs remaining
current PITI: 2328.29
Total rents: $3125/mo (37,500/yr)
tax basis: $331k (I think, after deciphering my tax's guy's answer on how much tax i'd pay if i sold)
Other debt:
"family loan" (long story; related to the one from my first post, but not worth explaining; it's essentially a HELOC:
40k @ 3.125%
payment: we currently pay $1100-1300/mo
Student loan: 15k @ 3.125. 8.5 years left.
Payment: $177/mo
Other relevant information:
I am 46 years old. Spouse is 44
full financial / retirement info: viewtopic.php?f=1&t=211218&p=3241371#p3241371
We just put some $ into remodeling our home instead of moving and we're there for the long-haul (at least 15 years). Yes, anything can happen, but kids just finished Kindergarten.
The rental is in a prime location - one of the best in the city - but the way the previous owner remodeled it, it has a basement without windows and though I tell the people that rent it that they can't use it as livable space, it makes me nervous. The previous owner actually rented the basement as another room and charged another 15-20% in rent. I just can't do that and sleep at night. The house is also old: 1941 so can be subject to high maintenance costs. Will probably need a roof within 5-7 years
One question I have about the primary loan is that we've paid 8 years on an amortized loan. At what point does refinancing it actually make the money even more expensive since the interest is front loaded? Just a thought that requires more math skills than I have...
Options considered for primary residence:
(1) Refinance primary residence w/ cash out to pay off the 40k. 15yr loan (we'd own the house upon retirement) would put us at a payment of about $2200 rate quoted a month ago was 3.625%. Total change in cash flow would be about +600 which can be put toward student loan or towards IRA's.
(2) Refinance primary residence w/ cash out to pay off the 40k. 30yr loan. Payment would be about the same, 1600. Rate 4.375%. This changes cash flow to +1100/mo which can go to student loan, then IRA's. Maybe make an extra payment or 2 each year to shorten the loan a bit?
(3) Sit tight and keep paying the most possible to the debt.
Options considered for rental:
(1) sell outright. Tax guy freaked out when I even suggested it. His first response when I asked about the taxes I'd pay:
I asked for further explanation and got this:Based on a sales price of $550k - 600k, you would realize a capital gain of $269k - $319k. The taxes on this capital gain would be $83k - $101k.
so, needless to say, he says bad idea.Your Federal capital gain rate is 20%. California has no capital gain rate so you will be taxed at a 9.3% rate. Since your adjusted gross income will be so high, you will lose a percentage of your itemized deductions. You will also be subject to the Obama care tax which is applied against high-end taxpayers. Finally, depending on your adjusted gross income, you might be subject to the federal Alt Min tax which starts at 26%. What I provided you was a combined Federal and California estimated tax liability based on the sales price estimates provided by you. These numbers are for your planning purpose only as the real tax liability will be determined with the real numbers used on your 2017 tax returns.
(2) Exchange into another property. This is a more complex question. A friend who does commercial property investment sent me an office building listing where I would be able to exchange in and pay cash. If you want, I could post the full financials, but my quick math said about an 8.5% return. My amateur math says my current rental is only making about 4%. (?).
(3) Do nothing.
Anyway, open to any and all ideas. Thanks!
matt