Recast (principal paydown) vs. Investing in another property

[Matthew McNeil]

Honored to be a part of the BP family, and I’ve learned so much!

I own 3 SFH properties. I have enough money to do a $50K Recast on one of my properties with the highest principal owed. Recast meaning paying a lump sum toward the principal which results in re-amortizing the loan (note; this is not a REFI). Lender charges a flat $500 fee. I actually did a Recast on another property last year that shaved $250 off my monthly payment, which added to my cashflow.

Rearview mirror hindsight is a great mentor, and although I don’t regret doing it I realized sometime later that the drawback of recasting is I ended up trading fluidity for equity.  

My question is simple; invest the $50K in a Recast on an existing property, or invest the $50K in another property?  Would appreciate numbers to support varying perspective.

Thanks!

[Matthew McNeil]

Thanks much to every one for the great feedback!

Jay, my 3 SFHs are located in Meridian, Idaho which is growing rapidly!  The median home price of $270K was up 9.5% from the previous quarter and is up 21% during the past year.  I’ve purchased 2 SFHs in the past two years, and the one I bought in 2017 is up $50K in value.

However, the current seller’s market is overpriced and my realtor confided to me that investors aren’t buying as many investment properties as in previous years because the rents aren’t keeping up with the rising home prices.  That "disproportion" erases net cash flow for investors looking to buy SFHs in the current market as they look at their spreadsheets.

That said, my secondary follow-up question is this. Rather than doing a Recast, if I invest the $50K into another SFH (at a price point that's right for me) I'll end up with $0-100 net monthly cashflow compared to my 3 other SFHs that are producing $2200/month net monthly cash flow (cumulatively).

Based on the incredible growth going on in the Boise/Meridian Treasure Valley area (with an additional 400,000 new residents expected to move into the valley in the next 30 years) is it worth it to have a rental in my portfolio that is funding its expense but not netting anything to me?  Is it worthwhile to let that one SFH have a growth in equity strategy? In a simplified nutshell; I'd have 3 SFHs with healthy positive net cash flow that can fund all expenses included a significant maintenance issue that might pop up + 1 SFH with zero cash flow, but expenses are funded.

Thanks!