Need advice about a refinance on an investment property.

[Susanne Rieth]

Hi. We are looking to refinance our condo that we use as a rental property. We currently pay 1288 for our mortgage and it has a horrible interest rate 6.25%. We get 1600 for rent, and after our hoa fees - 550 we end up at 1838 a month or 238$ a month out of pocket. our refinance options are a 15 year fixed where our payments would be 1300 (total payments 1850$). So lightly more out of pocket but we pay off the loan in 15 years. If we do a 30 year fixed would be about 800 (plus 550 HOA total of 1350). Our thoughts are that we would put the extra $250 a month from that scenario back into the mortgage to try and pay it off in 18/19 years. I know this isn't a cash flowing property, but we are in NYC and there has already been an 80,000k appreciation on it...we are sort of hoping that long term the appreciation would make this worthwhile. Anyone have any thoughts on this? The mortgage guy thinks we are crazy if we don't do the 15. I think, since that will cost us a bunch out of pocket that it makes less sense for us. Not sure though...new to all of this!!

[Guifre Mora]

Originally posted by @Susanne Rieth:

Hi. We are looking to refinance our condo that we use as a rental property. We currently pay 1288 for our mortgage and it has a horrible interest rate 6.25%. We get 1600 for rent, and after our hoa fees - 550 we end up at 1838 a month or 238$ a month out of pocket. our refinance options are a 15 year fixed where our payments would be 1300 (total payments 1850$). So lightly more out of pocket but we pay off the loan in 15 years. If we do a 30 year fixed would be about 800 (plus 550 HOA total of 1350). Our thoughts are that we would put the extra $250 a month from that scenario back into the mortgage to try and pay it off in 18/19 years. I know this isn't a cash flowing property, but we are in NYC and there has already been an 80,000k appreciation on it...we are sort of hoping that long term the appreciation would make this worthwhile. Anyone have any thoughts on this? The mortgage guy thinks we are crazy if we don't do the 15. I think, since that will cost us a bunch out of pocket that it makes less sense for us. Not sure though...new to all of this!!

 Susanne let get rid of the mortgage guy, to begin with, he is what he is a mortgage guy! Find someone that really puts this investment in paper and makes you see your options and real costs. The problem will still be there its not the rate its the property. Your 80K appreciation will fizzle away. 

What is the actual Rate offer for the 15 and 30 years plus the closing costs?

1) HOA at 550 its the problem it's eating away and always will. Wait until it goes up.

2) Appreciation sounds good but until you sell it pays off. But how much are you putting in costs and expenses?

3) You should never throw good money behind bad money. It's costing you out of pocket this is not an investment is a liability. 

If you follow any of the teachings here -in BP you can use some qualifiers to analyze the property:

1% rule Rent should be 1% at least of the purchase price it?

50% rule expenses if at 50% should still let the property cash flow. You are at 53% just with mortgage and HOA. Vacancy, CapEx, Insurance, management fees, Repairs, and Taxes?

DSCR: .81% this tells you you are upside down in the NOI and mortgage. Lenders usually don't like this if it's not 1.2% this may be why you are at 6.5%.

Let me put a tiny bit in perspective $550 HOA + $250 extra a month out of pocket. x 19 years = $144,000 and I haven't even touched interest. How about putting this amount into your pocket with cash flow?