Mortgage on a rental property

[Satish Vittalam]

I have a home that I will be leasing shortly (that I was staying.. Moving out for job reasons). I pay around $2,500 per month on a 15 year and may have another 10 years before it will be paid off.  The amount I pay includes principal + mortgage + Insurance. When I inquired about the rental market, it hovers between 2400-2650. So, even if get an optimistic rate of $2700, I might obviously not have a good cash flow, keeping into account 10-15 % for repairs, vacancy and any unforeseen expenses. I bought this home brand new in 2010.

So, my question is should I stay on 15 year and keep paying the difference. Not sure if its a smart move. The only benefit I see is I might be saving interest on the 15 year loan compared to 30 year. Or should I move it to 30 year and generate some cash flow out of the deal. But, I am resetting my payment schedule for another 30 years. Plus I will pay more interest.  Not really convinced on that as well..:) 

Looking for some advice from the experts. Thank you.

Satish

[Mike F.]

The only thing I care about is equity. You build equity through appreciation and by paying down your notes. So the only question for me would be which note pays off the debt faster and the answer is the 15 so I'd keep it.  What would you do with the extra cash flow if you refinanced? Whether you would come out ahead refinancing would depend on what you did with the difference and how it turned out in the long run. One more thing to keep in mind as time goes by rents go up your 15 year monthly amount stays the same so the cash flow should increase naturally over time no matter what you do. In 4-5 years you have more cashflow anyways, AND you've got a lot of equity built up.