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Second rental or pay off first mortgage

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Money Talk > Real Estate

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koa
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Second rental or pay off first mortgage  Reply with quote  

First some background on myself. I'm 24 grossing 50k (42 from work+8.4k from rental) I live at home still and pay no rent. I have a car payment and the mortgage from the first rental. I paid 23k (valued at 39) for the rental, earning 700 a month. I still owe about 18k on it and 15k for the car. I plan to pay off the car by the end of this winter. As of now I have about 1500 extra at the end of my expenses each month. Once I pay off the car that will be near 2k a month. I also have proper cushion in case of the unforeseen for about 3-5 months. Now I'd like to get another rental and then a house for myself in the near future. But I'm wondering if I should pay off the first rental which is at 4.25 apr before buying anything else. Any advice would be appreciated. I'm also fairly sure I can find quality tenants and another deal around that good in my area.
Post Tue Nov 03, 2015 3:49 pm
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oldguy
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You should be deducting most of that $8400 from your gross income (rather than paying income tax on it). The interest on the loan is about $800, the house depreciation is about $800, the insurance, repairs, etc, are all deducted.

I would caution against buying rentals in a slum area - the value of the property will likely go down, the costs to keep it livable will become high, bad tenants will trash it, neighborhood kids will trash the exterior, shootings, lots of police, etc. You might have a higher return on a nicer, newer $100,000 house that rents for $1000/m, appreciates steadily to become a $200,000 house, and requires much less attention.

As for prepaying 4% capital - I can think of no reason to do that, you can earn way more than 4% by putting that money to work for you. If you, as a young person, desire to invest and add wealth, you'll need risk. Ie, if you avoid risk, you will be avoiding wealth. Remember the Law of investing - " risk and return are directly proportional". So don't avoid the risk of leveraging, investing - instead, learn to manage risk.
Post Tue Nov 03, 2015 4:49 pm
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koa
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The house i already bought had new vinyl siding, roof, furnace, and windows within the last 5 years. Its a pretty small repressed area thats generally rural. There are many houses for sale and most people are looking to rent rather than own. I dont understand that logic personally, but its to my advantage i suppose! The biggest problem for me however is my job is technically part time and they will only say i make 30 hrs a week when its usually 50+ so it makes it hard to get financed despite having more than adequate funds.

edit: i also have a rather stringent screening process to find suitable tenants and it seemed to work this first time excellently!
Post Wed Nov 04, 2015 12:07 am
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koa
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I'm fairly new to the landlording business, but it seems to follow the rule of 'an ounce of prevention'. I'm just curious if buying several more rentals is wise and if i should maybe diversify? This first house has gone almost too well to be true. At 350 for mortgage, tax, and insurance and 700 income each month i feel like I'm missing something. Also would you happen to know if private financing might be something i should look into?
Post Wed Nov 04, 2015 12:13 am
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javditnhau
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I'm fairly new to the landlording business, but it seems to follow the rule of 'an ounce of prevention'. I'm just curious if buying several more rentals is wise and if i should maybe diversify? This first house has gone almost too well to be true. At 350 for mortgage, tax, and insurance and 700 income each month i feel like I'm missing something. Also would you happen to know if private financing might be something i should look into?
Post Mon Dec 28, 2015 6:06 am
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selina9
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Same
Post Thu May 19, 2016 7:29 am
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