A question on refinace?

[Cuong Thai]

Good evening my fellow investors,

How are you doing today?  We hope you are well.  I need your advice.  So please help me.  I live in the Inland Empire, CA.  I have two homes.  One is a rental, and the other is used as my primary residence.  Both of them have mortgages: Rental one owes about 195K, and the primary is 259K.  I would like to know if I could refinance and take out the equity in my rental property and pay off my primary residence.  Then I would have only ONE mortgage to pay.  Right now the combined mortgages are about 2600 dollars a month.  The money that I make from my rental is about 200 dollars per month after all taxes and mortgage are paid.  The refinanced amount would be about 460K and I would like to go 30 years fixed loan.  What do you think?  Is this a good idea?  Personal income taxes issue? Thank you very much for your help.  I am looking forward to reading your valuable inputs.  Joe

[Paul Haviland]

The terms on a loan secured by your primary residence would be better than that on your rental. May want to think about reversing the plan - depending on your ultimate goals.

[Dan Tsunekawa]

Agree he rate will be higher on rental. One cool thing about moving the mortgage to the rental is that it frees up tons of equity on your primary, which you could turn around and get a Heloc on and find another investment if you choose. Obviously it also frees up a chunk from your paycheck that can be reinvested.

Is $200 a month enough for capex/maintenance/vacancy reserves on your rental? I wouldn't think you'd wanna do this deal if it makes your rental negative cashflow.

[Jared Rine]

@Cuong Thai...as advice you've gotten, rate will be higher on rental. It might make more sense to reverse your plan, depending on goals. However, as Dan mentioned, if you consolidate using the rental, then you free up your equity in your primary and you could tap it. The other thing that should be pointed out - does the rental have enough equity in it to be able to put a $460k loan on it, and still be in LTV constraint? You'll only be able to get to 75% LTV.

[JP P.]

Originally posted by @Cuong Thai:

Good evening my fellow investors,

I have two homes.  One is a rental, and the other is used as my primary residence.  Both of them have mortgages: Rental one owes about 195K, and the primary is 259K.  I would like to know if I could refinance and take out the equity in my rental property and pay off my primary residence.  Then I would have only ONE mortgage to pay.  Right now the combined mortgages are about 2600 dollars a month.  The money that I make from my rental is about 200 dollars per month after all taxes and mortgage are paid.  

Cuong,

Looking at your numbers it's not looking like this makes sense to be a good move in ANY way!! Prop1 is 195k, Prop2 is 259k totaling up to 454k in loan debt.  With that being said you are only paying 2600 on the 454k debt.  Now typically I estimate if one had a 454k loan then ones monthly mortgage would be around 4500; so you are doing good in that aspect.  With your combined mortgages only being 2600 and Prop1 is 43% of your loan, I figure it would be 43% of your mortgage as well.  Which puts Prop1 at 1040 monthly and renting for ~1300.

Like EVERYONE else said 200 profit doesn't seem much for incidentals that will rise.  If you were to refinance just on the rental (don't know how it's valued at 460k now) it looks to me that you would be running a grave negative cash flow, which seems counter-productive.  I figure it'll cost you 4500 in a new mortgage on Prop1. and now instead of paying 2600 for both homes you would be paying 4500 for both homes.

And lets say in some miraculous way is 4500 not what you really are going to pay, WE can guaranty that you would pay more than the 53% of what you are paying for your primary property - Prop2. So lets say this is true, more than likely you would pay an easy 2000 (53% of the 2600 combined mortgage is 1560 and rounding up to 2000.)

this just looks like a messed up plan all the way around.  Unless I'm missing something

[Cuong Thai]

Good evening Dan, Paul, Jared, and JP P,

Thank you for your inputs.  I will think about it again before going forward with the refinance.

Take care and best wishes to you all,

Joe