Mortgage question/payoff dilemma

[Paul Nagy]

Hello everyone! I've got a single family home that I've owned and rented since the beginning of 2007. It is in a nice upper middle class suburb of Kansas City. When I bought this property I had absolutely no idea what I was doing and in hindsight I never would have purchased this property. However, he we are!

I bought the home no money down with with 2 interest only loans. The first loan is at 6.75% and is for $210k with the payment being $1,675 and the second loan is at 9.75% and is for $52k with the payment being $475 for a total monthly payment of $2,150, yet rent is only $1,995 so I am negative $155 every month. Both loans are with Citi Mortgage.

I currently own 3 other rental properties and over time would like to purchase more. What I would like to do is pay off the 2nd mortgage which would have been the same as making a 20% down payment from the beginning. This would also make it that much easier for me to then refinance the 1st mortgage is saving me even more money. I figure refinancing the 1st mortgage would save me around $150 per month at least. This would allow me to be cash flow positive.

Selling is not an option because the property is only worth about what I paid for it but to be sellable (as opposed to rentable) it will need about $40,000 in work (roof, flooring, windows, etc.)

Thanks everyone in advance, much appreciated!