Originally posted by @Joe Villeneuve:
Originally posted by @Sam Scott:
Monthly payments aren't my main concern. The property breaks even with the first mortgage, and I used the funds from the 2nd for other investments, so can't count that against this property.
I think break-even would be about two years. But, to even do that, I'd have to pay off the HEL and unwind some other non-RE investments.
Monthly payments should be your concern. How else will you be able to judge when you're going to break even and start making a profit? Since everything else is paid for by the tenants, you break even when you recover all the cash you put in. The more cash you add to the mix out of pocket (i.e...helping the tenant pay off the mortgages), the more cash you have to recover before a profit is made...and the longer it takes to get there.
Well, I think that's like the tail wagging the dog. What influences the monthly payment is LTV, interest rate, term, etc. The monthly payment is the net result, so by focusing on that, I'd lose the perspective on it's inputs.
For me at least it's get a bit more complicated since I've used the HEL for other liquid investments which return > net 3% after taxes I pay on the HEL.
For arguments sake though, let's say I refi into a 5/1ARM at 4.5%
fees: 1% 2300
new payment 1191
current payment: 1338 (not including the 500/month on the HEL)
difference: 147
I'd have to pay off the 40k HEL. Let's say I am earning 7% on that money (so net 4%) = 133 *.78 (taxes) = 104 profit opportunity cost each month I'd be giving up.
So it seems like it only saves me 40/month, almost a 5 year break-even.
