[Newbie] - Rental Property - Pay off loan or keep mortgage

[Khalil Ghorbani]

Hi everyone. I have lurked on the board for a while and read it but I have a specific question and would love some experienced people to help me figure out if my thought process is correct. Please move this if it's in the wrong forum.

I bought my condo in TX and lived in it for around 73K back in 2007. After I moved to California I started to rent it out instead of selling it. The value of the house is around 100K at the moment.

I bought the house with an 80/20 30YR loan I did when I was young with stated income. Loan #1 has about $48,700 left @ 6.75% and #2 has $10,200 @ 8.75% for a total of $58,900. Taxes this past year was $1,893.00 which are escrowed in the first loan and maintenance fees are $395.00 monthly.

I currently rent out the condo for $1200 a month I basically am at break even after paying the mortgage and maintenance fees.

I have money saved, around 125K that I was using to flip homes with a buddy but we are parting ways and I am trying to figure out if I want to still try to use the money for flipping with my brother in law now or get into more rentals for monthly income since my day job is not doing so well.  He would be on the loans using our money together as down payments. 

I was trying to figure out if it would make sense for me to take part of my money and just pay off the full mortgage because of the higher rates (Can't refinance because I don't have income really so probably won't qualify). I did some simple math and not sure if I am looking at this correctly or completely wrong.

Payoff Loan

• Income - $1200
• Maint. - $395
• Taxes - ~$157.00
• NET - $648 Cash Flow
• Years till the initial $58,900 back  - 7.5 Years

Keep Loan

• Income - $1200
• Maint. - $395
• 2 Mortgage Payments (Includes Taxes) - $756.10
• NET - $48.90 Cash Flow (12,300 over the remaining 21 years of the loan)

So based on this it seems like if I pay it off, it makes a lot more sense for me since I get my money back in about 7.5 years and the rest of the time I will be just making cash flow (Granted these are with price of rent staying the same). If I then take the 13.5 years left to compare it to the rest of the 30 year loan that's about 104K in profit since I don't have a loan that is being paid off. I was figuring if I ever needed the cash back i could always get a HELOC or something.

Can someone with more experience please explain to me if I am doing the right type of calculations to come to this conclusion. Or am completely wrong and not looking at this correctly. If there are any questions or information needed please let me know and I will get you the info to help. 

Sorry for the long post but figured it's best to be thorough. Thanks to everyone in advance. 

[Alexander Felice]

you really want to refi that house to make it profitable.

if not, I would sell it and trade the unit for one that performs

paying off the loan is not a solution, it's just a really lousy accounting magic trick. You would be trading cash for equal equity, you gain nothing and lose a ton. you would be giving up liquidity for nothing and the only way to get it back is to borrow it back. Also, paying off your note doesn't make your unit perform any better it just means you're subsidizing the future negative cash flows but all up front, like the reverse of a cash-out refinance.

refi the unit, if you can't do that then sell it. It's underperforming and you can't fix that with cash you can only fix it (maybe)  with lower expenses or higher revenue. If you're unsure what bank options you have, find ~20-30 banks, contact each of them and find someone who will work with you.