15 yr Primary Home, want to rent out, should I refinance to 30yr?

Question

Sorry for the long title, I wanted to be specific.  I have searched for this topic and have only found either "Should I finance rental purchase with 15yr or 30yr?" or "Should I re-finance my current rental from 30yr to 15yr" or vice versa.

My situations is this.  I bought my primary home in 2010 on a 30yr at 5.25%.  I refinanced in 2013 to a 15yr at 2.625%.  We have been looking to move to a different area and upgrade from a condo to a single family home.  I would like to have the option to rent out my current condo, but would only breakeven at best case.  I fell in love with the low 15yr rate at the time, but now I am kicking myself for not going for the 30yr in the low 3%s and just paying the 15yr so I would have more flexibility now.

My question(s) is/are this:

- With rates dipping down to similar lows as 2013, should I refinance again into a 30yr so that I can rent out with some cash flow?

- Or should I stick with the 15yr and rent out at breakeven?

- Or should I just sell the place if we end up moving?

Any help, insight or opinions would be appreciated.

Additional info if it helps:

- Location is South Jersey, outside Atlantic City

- We have been house hunting for over a year and have not found, or we missed-out on, any single family homes we love as much as our condo on the bay.

- we are a young married couple, about 30yrs old

- our condo development was less than half finished when we bought in 2010, now the last units are built and I am told only 3 are left unsold.

Mike H. · Answer

If this was a SFH, this would be the answer I would give. And this assumes that your intent is to own some rental properties including this one.

1) Refi into a 30 yr fixed and pull out every penny you can get. Its the cheapest money you'll ever get. Owner occupant conventional financing at 30 yr fixed today is literally the cheapest money you may ever get. Take out every penny.

2) Use that money to buy more rentals......

That being said. There are two concerns here. 1) At 30 yr fixed and taking out every penny of equity you can, will the condo cash flow positive? Or will it lose money?

If it will lose money, how much, and how much equity do you think you can get out of there? Thats a huge factor.

If you can take 100k out of the condo and lose $100 a month, do it! Do it now. You'll still have 20% equity left. And you'll get a tax writeoff plus you'll be paying down your mortgage a couple hundred bucks a year. so you won't really be losing $100 a month.  Plus you'll get appreciation.

But thats the key. How much money is the thing worth? How much money can you pull out. How much appreciation do you think it will see? And how much money will it lose/gain per month?

Think of it like this. If you refi'd into a 30 yr fixed and the condo made you $200/month, what would that condo look like in 30 years after its paid off? If its worth 200k today, would it be worth 400k in 30 years? I don't know how condos appreciate. Typically I understand that they do so at a much lower rate. For SFH, the historical rate here in the midwest is about doubling every 20 years or so.

And how much rent would you be collecting on a paid off condo in 30 years? 2k/mo? 3k/mo? Of that how much is profit (i.e after taxes, insurance, repairs, vacancy, etc)?

1,500/mo?  So in my mind I guess it all depends on the numbers you're talking about and about your understanding on what the values of condos do over time.

But ultimately, if you can even break even on the the thing, almost every piece of real estate you can get at 30 year fixed is going to be a winner over time.

But I do think you want to weigh your numbers and think about what the cost of keeping that house might really be in terms of getting another SFH as a rental instead. That condo will be eating up one of your precious 10 conventional mortgages.  If you see yourself adding more than 10, then maybe you would sell it. If not, then why not keep it?

Drew Abshire · Answer

Thank you Chris, I like where your head is at.  I will talk to my lender about a 25yr and see what the options look like.

Chris Mason · Answer

You've owned it for 6 years and would be looking at resetting to year 1 of 30.

Are you aware that 25 year fixed mortgages exist?

Joseph Scorese · Answer

Hi @Drew Abshire,

How are you and welcome to BP!

Let me know if I can assist with your Mortgage Scenario

Regards,

Joe Scorese

Drew Abshire · Answer

Thanks for the ideas Mike.

I bought in 2010 but since the builder is trying to off load the last units, they are selling at about 10% below my purchase price, so I could only pull out about $20K and keep the 20% equity.  Although In 2013 my refinance appraisal was about 15% above my purchase price, so if that were to be the case again, I could pull out about $50K.

With $50K I would be losing about $100$-150 per month

15 yr Primary Home, want to rent out, should I refinance to 30yr?

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