Refinance upside down/negative cashflow property into positive cashflow or get out?

[William Murrell]

So I have a house I purchased a number of years ago, right before the market tanked.  The purchase price was 145,500 and the interest is 6.25%.  I owe ~128k and it's probably worth ~105-110k.  I have been renting it for years at a negative cashflow as I didn't want to sell and have to put a bunch of cash with it.  And the way I look at it, the tenant is paying for the majority of it.  However, now I have about 30k extra cash and I have been looking at paying it in to reduce the principal and then refinancing, which would make it cashflow ~200/month.  If I stay as is, I lose about $300/ month.  If I sell it, I still have to put a bunch of money with it.  If I put that money into it and refinance, I will drop ~2% in interest and begin cashflowing.

It makes the most sense to me to put that cash toward the house and refinance for the cashflow to go from -$300 to +$200 per month.  However, I want to make sure I am using this money to the greatest effect and perhaps someone has a better idea.

  Input/ thoughts?

[Bill Jacobsen]

My thoughts are without more information.  Your options are:  refinance, do nothing or sell.

If you refinance, you use the $30K to reduce principal and obtain new loan.  You will cash flow $200 per month so will take you 12.5 years to earn the $30K back.   But during this time the value will probably go up $30K or so and you will have paid down the mortgage by a like amount. 

If you do nothing, you will keep the $30K but will lose $300 a month.  You will lose the $30K in 8.3 years.  You will also have appreciation and mortgage paydown.

If you can sell after paying 7% selling costs you will net $97750 to $102,300.  You will be short $25,700 to $30,250.  You may be left with a little cash.

It seems that the worse solution is to sell leaving you with little or nothing.

In the long run refinancing gives you the most money with doing nothing in second place.

Good Luck.

Bill