Refinance for rental property

[Dave Chow]

I have a rental property which is originally purchased not for rental purpose. 

Now its renting out for $1550/MO. 

The loan has a 10-year fixed rate of 3.15. 

The loan balance is about $110,000(house price is about $190,000)

and month mortgage including taxes and insurance is about $1650. 

So there is kinda of negative cash flow. 

I am reconsidering refinance it. It would be :

30-year fixed rate,

interest rate would be around 4.2

Should not have any down payment? 

Usually people think refinance is to lower interest rate. But in this case it would be the other way around. Maybe the only good thing is to gain more cash flow every month. Not sure about the total costs to refinance it yet. Maybe $2000. 

Anyone suggestions about if this is worth the work and money? Thank you! 

[Mike H.]

I would suggest the opposite. You are killing it on this property and the last thing you should want to do is sell this cash cow. 

At first glance, I could see how someone might suggest to sell - its not cash flowing. But before you make that kind of call, I always want to see the full picture and the full picture means - rental income, appreciation, and principal paydown.

So I could see how that may be missed but its huge. In your case, its beyond huge. If you have a 10 yr mortgage at 3.1%, then I'm guessing your initial balance was say 140k or 150k maybe?

Lets say the initial balance was 140k, I'm guessing your principal paydown is about 1k to 1100 a month or so. So while your gross rental income is actually a 100/mo loss, and your net rental income (i.e. subtract for repairs, vacancy, etc) is probably 300/mo or so loss, you're still netting about 700 to 800/mo or more in net worth and thats not including any appreciation.

What would that house look like if you refi'd into a 30 yr conventional mortgage ?  You can roll in the costs of say 4k for the refi and end up with a 30 yr, 114k loan and 4.5% (4.1 seemed low for an investment property).

Your mortgage payments (not including taxes and insurance) on that would be: $582/mo Lets guess your taxes and insurance now are 275/mo? So 850/mo PITI. Now your gross rental income goes from a loss of 100/mo to a profit of 700/mo. Your net profit is probably around 450 to 500/mo after everything. And you still have 150/mo in principal paydown.

I'd take that all day long on a rental profit. And the other nice thing about that house is that you still haven plenty of equity there 115k loan/190k value = 60% LTV. You could still put a heloc on that and maybe pull out 35k to 40k to use for more investing.

The last thing I'd want to do is to sell that thouse. Not if your goal is to buy and hold long term some good rental properties that kick off some really nice cash flow.