Rental home and paying off debt by refinancing primary home cash out

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Xrayman69
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Rental home and paying off debt by refinancing primary home cash out

Post by Xrayman69 » Thu Aug 16, 2018 5:08 pm

I plan on cashing out a small percentage of our primary home about 25% of total home value and buying out the other half of a rental property from brother in law. The terms we could get from cashing out are significantly better than other options regarding the rental home itself. It would also be quicker and cleaner. Allow me to I’m edi start renting the property as opposed to sitting on it for up to 3 months using the rental property itself as the collateral for cashing out then giving him 1/2.

My question is the rental property would have no loan or interest costs and thus other than property taxes and misc expenses for maintenance would this all be considered “profit”. I know there is depreciation. The interest would be part of our primary home mortgage and this already exceeds 10k as would the various property taxes reguardless.

Any suggestions on how to minimize taxable “profits” for this investment/rental property.

chevca
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Re: Rental home and paying off debt by refinancing primary home cash out

Post by chevca » Thu Aug 16, 2018 6:29 pm

It would all be considered income from the rents received. Sounds like you wouldn't have as many deductions without the mortgage interest, but there are still plenty of other deductions to make use of.

Have you fully studied up on being a landlord before jumping into this?

Jablean
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Re: Rental home and paying off debt by refinancing primary home cash out

Post by Jablean » Thu Aug 16, 2018 7:14 pm

I don't know if you can loan yourself money? You could if you had the rental set up as an LLC or other business type I would think.

But with what you've got now then being able to get better deals on your own mortgage is offset by what expenses you can't deduct now from the rental. You may find that overall it's costing you more.

ryman554
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Re: Rental home and paying off debt by refinancing primary home cash out

Post by ryman554 » Fri Aug 17, 2018 9:25 am

Jablean wrote:
Thu Aug 16, 2018 7:14 pm
I don't know if you can loan yourself money? You could if you had the rental set up as an LLC or other business type I would think.

But with what you've got now then being able to get better deals on your own mortgage is offset by what expenses you can't deduct now from the rental. You may find that overall it's costing you more.
+1.

Under the new tax law, mortgage interest deductions for your primary residence have been really nerfed.

Any expense on the rental is a deductible business expense, subject to passive income rules.

I see this as I would much much rather have a mortgage on a rental than on my primary house, purely from a monetary point of view, even if the rental mortage was slightly (or even not-slightly) more expensive.

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unclescrooge
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Re: Rental home and paying off debt by refinancing primary home cash out

Post by unclescrooge » Fri Aug 17, 2018 9:31 am

ryman554 wrote:
Fri Aug 17, 2018 9:25 am
Jablean wrote:
Thu Aug 16, 2018 7:14 pm
I don't know if you can loan yourself money? You could if you had the rental set up as an LLC or other business type I would think.

But with what you've got now then being able to get better deals on your own mortgage is offset by what expenses you can't deduct now from the rental. You may find that overall it's costing you more.
+1.

Under the new tax law, mortgage interest deductions for your primary residence have been really nerfed.

Any expense on the rental is a deductible business expense, subject to passive income rules.

I see this as I would much much rather have a mortgage on a rental than on my primary house, purely from a monetary point of view, even if the rental mortage was slightly (or even not-slightly) more expensive.
This.

However read up on mortgage deductibility for Investment properties. I believe you can still deduct interest payments on loans used to buy investments even if they are collateralized by another property, which is what you are trying to do. It would not be a deduction on your personal property, but I'm not an expert so read up on the IRS publication.

I had started another very similar thread that answers your question.
viewtopic.php?f=2&t=252802&hilit=Irs

bltn
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Re: Rental home and paying off debt by refinancing primary home cash out

Post by bltn » Fri Aug 17, 2018 6:33 pm

If the interest on the home loan is not deductible but the interest on the rental ks, how much difference is the cost of the two loan options for the rental.
I would borrow the rental money separate from my home mortgage.

spammagnet
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Re: Rental home and paying off debt by refinancing primary home cash out

Post by spammagnet » Sat Aug 18, 2018 2:23 pm

I'm not debt-averse as some are but I would be very uncomfortable pledging my primary residence for an investment of any kind.

StealthRabbit
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Re: Rental home and paying off debt by refinancing primary home cash out

Post by StealthRabbit » Sat Aug 18, 2018 3:26 pm

ryman554 wrote:
Fri Aug 17, 2018 9:25 am
...

Any expense on the rental is a deductible business expense, subject to passive income rules.

I see this as I would much much rather have a mortgage on a rental than on my primary house, purely from a monetary point of view, even if the rental mortgage was slightly (or even not-slightly) more expensive.
^^^ my vote...

Borrow on the rental (as long as it cash flows without risk)

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abuss368
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Re: Rental home and paying off debt by refinancing primary home cash out

Post by abuss368 » Sun Aug 19, 2018 2:25 pm

Xrayman69 wrote:
Thu Aug 16, 2018 5:08 pm
I plan on cashing out a small percentage of our primary home about 25% of total home value and buying out the other half of a rental property from brother in law. The terms we could get from cashing out are significantly better than other options regarding the rental home itself. It would also be quicker and cleaner. Allow me to I’m edi start renting the property as opposed to sitting on it for up to 3 months using the rental property itself as the collateral for cashing out then giving him 1/2.

My question is the rental property would have no loan or interest costs and thus other than property taxes and misc expenses for maintenance would this all be considered “profit”. I know there is depreciation. The interest would be part of our primary home mortgage and this already exceeds 10k as would the various property taxes reguardless.

Any suggestions on how to minimize taxable “profits” for this investment/rental property.
Why invest in the rental property? Is it cash flow positive? Rents received are income. Expenses incurred on the property may be deductible. I would rather have a note on the rental than my primary home.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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abuss368
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Re: Rental home and paying off debt by refinancing primary home cash out

Post by abuss368 » Sun Aug 19, 2018 2:26 pm

One additional item to consider is the Federal tax law changes for 2018. The interest on the mortgage to your primary home may no longer be realized as a deductible itemized expense as the standard deduction has increased. Without knowing more about your personal tax situation it is hard to say.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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