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Thread: Rental or Residence?

  1. #1
    Stingy DM Veldan Rath's Avatar
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    Default Rental or Residence?

    Hi all,

    I知 currently looking at a few extra scheckels a month and was thinking about applying the to extra principal payments.

    The decision would be which property to apply it to, the rental property or my personal residence.

    The residence mortgage is 5 years shorter than the rental, but the rental is less monthly than the residence by about $800.00

    The interest rates are very close, but the rental is about .75 higher.

    Any thoughts?
    Brevior saltare cum deformibus viris est vita

  2. #2
    If those are the choices, why wouldn't you just use the rental? Its interest rate is higher, so you're getting more for your money in the long run.

  3. #3
    Stingy DM Veldan Rath's Avatar
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    I guess I misspoke, the rental, we rent out. I知 a landlord. I知 debating which makes more sense to pay down on the notes faster.
    Brevior saltare cum deformibus viris est vita

  4. #4
    I see, so the question is due to the tax savings, right? It could be mathed out, but you need some numbers that you probably won't want to share over the internet. I can't think of any reason not to just do what the math says right now.

    edit: I'm not being helpful at all. Give me a few minutes, I'll build a worksheet.
    Last edited by Wraith; 03-06-2018 at 03:16 AM.

  5. #5
    Stingy DM Veldan Rath's Avatar
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    Tax savings are good, but I’m thinking even more big picture.

    While my residence is ahead by 5 years, the income property (that is a more clear term) would be paid off faster I think...but would it be wiser to pay more towards the residence for security?
    Brevior saltare cum deformibus viris est vita

  6. #6
    edit: In my defence, I'm not totally sober right now and I had something totally wrong here before. The rental doesn't give tax benefits, and it's the higher interest rate of the two, so of course it's the one that should be paid down, regardless of the numbers.

    Which is paid off first doesn't really matter, you're saving a percentage of the extra you're paying down. If you're not planning on walking away from either loan, than which has more principal doesn't really matter.

  7. #7
    Theoretically there's some ramifications if you ever need to tap your equity in a pinch... I believe it's easier to do with a primary residence than a rental. But that's a fringe case; if one has decent rainy day savings, there's no real reason to prioritize the lower interest loan that also gives you a tax break.
    "When I meet God, I am going to ask him two questions: Why relativity? And why turbulence? I really believe he will have an answer for the first." - Werner Heisenberg (maybe)

  8. #8
    From someone who doesn't have this type of money to throw around...

    I'd put it towards the primary. There are a lot of unknowns with rentals, and while its always good to pay things off asap, you don't want to dump everything into it and something catastrophic happen to it for reasons outside your control. If an insurance payout ever comes into the picture you don't want what could be a long wait for a payout to be stressing your own living arrangements.
    "In a field where an overlooked bug could cost millions, you want people who will speak their minds, even if they池e sometimes obnoxious about it."

  9. #9
    Quote Originally Posted by Veldan Rath View Post
    Hi all,

    I知 currently looking at a few extra scheckels a month and was thinking about applying the to extra principal payments.

    The decision would be which property to apply it to, the rental property or my personal residence.

    The residence mortgage is 5 years shorter than the rental, but the rental is less monthly than the residence by about $800.00

    The interest rates are very close, but the rental is about .75 higher.

    Any thoughts?
    Roughly how close are you to paying off your personal residence?

  10. #10
    Do you have any reason to be insecure about your fiscal future and worried about a cash crunch? Or are you confident and simply looking to maximise your value?

    If you're confident pay off the rental, it costs you more and no tax break (I'm guessing this is the way it works there from what others have said). If you have reason to think you might have a crunch and have to sell something quick, pay off your primary.

    Though if that's the case then something more liquid like investments or bonds etc may be better than paying down either mortgage. Since you're paying down capital I guess you don't need liquidity so go for the rental.
    Quote Originally Posted by Ominous Gamer View Post
    Being upset is understandable, but be upset at yourself for poor planning, not at the world by acting like a spoiled bitch during an interview.

  11. #11
    I'd say paying a real estate/tax attorney or CPA for their professional advice is your best bet.

  12. #12
    Stingy DM Veldan Rath's Avatar
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    We’ve have a couple of months less than 25 yrs on the residence and 28 on the rental.

    Our 401ks are doing well, we have managed to wipe out our credit card debt, and other obligations are winding down, and I want to focus on more debt relief.
    Brevior saltare cum deformibus viris est vita

  13. #13
    Quote Originally Posted by Ominous Gamer View Post
    From someone who doesn't have this type of money to throw around...

    I'd put it towards the primary. There are a lot of unknowns with rentals, and while its always good to pay things off asap, you don't want to dump everything into it and something catastrophic happen to it for reasons outside your control. If an insurance payout ever comes into the picture you don't want what could be a long wait for a payout to be stressing your own living arrangements.
    Ominous has a good philosophy here. But I'd add two thoughts:

    1) Is the rental owned by an LLC? Is the debt collateralized with anything tied to your primary residence?

    2) I'm a big proponent of not paying extra towards a mortgage early until you can pay off the entire mortgage in one swoop. Makes more sense to have that available as another investable or liquid asset. Maybe even as a fatter backup reserve. Imagine something awful happened and you missed a mortgage payment. The bank won't care one damn minute that you've been paying ahead of schedule. They will tell you to fuck off and initiate foreclosure right away.

    The bank has taken a risk on your place, let them sit on that risk alongside you until you're ready to pay them back in full. And then think about if you want to concentrate liquid wealth in your illiquid primary residence. It may be good, it may not bed. But that decision should only happen when you're ready to pay them back in full.

  14. #14
    Quote Originally Posted by Veldan Rath View Post
    We’ve have a couple of months less than 25 yrs on the residence and 28 on the rental.

    Our 401ks are doing well, we have managed to wipe out our credit card debt, and other obligations are winding down, and I want to focus on more debt relief.
    If you want to reduce your debt obligations, why are you carrying 2 mortgages? Is your rental property *truly* a source of income, or is any profit being eaten up by loan interest, insurance, taxes, maintenance, updates, and personal time spent on it? You didn't say your age but I'm guessing you're near or around 40, and don't want to spend the next 25 yrs worrying about RE liabilities. Because a lot of things can happen before retirement age.

    Instead of asking which mortgage principle to pay early, I'd be considering which property to sell first!

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