Not sure what to do with rental house mortgage

[nixadm]

I have some money that I have saved up; roughly 32,000. I own a second house I am renting out which brings in about 250/monthly profit. I have a 5 yr ARM loan (1 yr old) on it with a rate of 8.0 right now. I am considering paying that off or down to save money on that interest rate but a friend of mine told me its better to keep the house under mortgage in case something happens.

I am currently earning about 5% on my 32k in a money market account. I was saving the money to buy a third house to rent but with the real estate market falling like it is i think i will wait for the market to hit bottom.

I was also considering getting into some kind of investing(apple maybe) but I've never done that. So I want to be putting my money in the right place.. but i'm not sure whats right.

Any comments or advice would be helpfull, thanks.

[anonymous_saver]

Do you have an adequate emergency fund? I would fully fund this before thinking of buying a third house.

If you do have an adequate emergency fund I would pay towards your ARM loan, since 8% is a fairly high interest rate. Especially when you are earning 5% on it.

How much debt do you have in both of these current homes, and do what other (if any) debt do you have?

[TBH]

If you've never done any investing, then does this mean you don't have a retirement account? (Roth or any other kind of IRA, 401k or any other kind of workplace plan, etc).

If you don't have a retirement account, I would strongly suggest opening one up!

Give us some more details on your other assets and we can give better advice. Otherwise, I agree with anonymous_saver--you should make sure you have six months' living expenses in cash before you put that money into either another house or the mortgage on the existing house.

Not knowing the full details of your situation, I'd do the following with the money:

1. Fully fund an emergency fund. I don't think everyone needs 6 mo living expenses, but you do because you've got your own house and a rental house that things could go wrong with.

2. Fully fund a Roth or Traditional IRA for 2007.

3. Then I'd plug the rest into that 8% mortgage ASAP.

Hope this helps.

[nixadm]

Originally Posted by anonymous_saver

Do you have an adequate emergency fund? I would fully fund this before thinking of buying a third house.

If you do have an adequate emergency fund I would pay towards your ARM loan, since 8% is a fairly high interest rate. Especially when you are earning 5% on it.

How much debt do you have in both of these current homes, and do what other (if any) debt do you have?

Sorry... should have mentioned that. I owe 29k on rental house; worth about 80k - 100k. The house I live in, I owe 130k worth about 165k (6.75 rate)

I don't have any emergency fund. I have put all my money into this house and this savings account.

I don't know alot about roth IRA accounts.. honestly I've always thought I can make more off that money thru investments then it sitting somewhere & not being able to use it.



Other debt... My truck is paid off, my wife's car(which I pay) is 33k, 12% rate

My wife has 35K in credit card debt, but I refuse to help her cause I've paid them off 3 times already (33k or so) and she continues to rack them up and ruin our credit so we end up with crappy rates.

The twist: Me and my wife have not been getting along; she just brought home divorce papers today.

If I put this money into the house she gets half of it basicly?

If this money is in a roth IRA in my name does she get half of it?

Is there anywhere I can put this hard earned money that she can't take it from me?




Thanks for the help

[TBH]

I don't know much about divorce law, and I don't know what the laws are in your state, but I'd say no, you can't hide this money from your wife.

If it were me, I'd keep that money in cash. If/when your assets are divided up, maybe you can use that money to pay her off so you won't have to sell both houses to come up with the money to give her a share.

You really, really, really should have an emergency fund. Even if you don't decide to keep that money aside for a potential divorce settlement, I'd keep a good portion of it in cash against emergencies. Figure out your own living expenses, plus what it costs to carry the mortgage on the rental house in case it's vacant, and set aside a few months' worth in cash.

Also, you really, really, really should open a Roth IRA. Right now all your assets are in real estate (and cash) but if real estate took a big hit you'd be stuck. You should have some of your assets in real estate and some in cash and some in teh stock market.

Open a Roth IRA if you fall within the income limits (I forget what they are but folks on here can tell you). Put $4000 into it for your 2007 contribution. Buy a target-date retirement fund (based on when you expect to retire) and that way you don't have to trouble yourself too much about what to invest in.

Good luck with the divorce. Sounds like a nasty situation to be in.

[nixadm]

thanks for the advice

[click4credit]

It depends on what other debts you have. If your interest on the investment loan is tax deductable then it may be worth focussing on paying off any personal debts first.
Another option would be to set up an offset account so you save the interest payments on $32 of the mortgage but still have access to the money if required. You can talk to your bank to see if this is possible.

[jamai]

investing in housing is relatively safe, i wouldn't rely too much on the housing market falling much further.