pay off mortgage or not

[ladyofengland]

We owe $110000 on the mortgage on our house at 4% for a further 20 years.payment each month is $877.
I have another small investment house worth $105000 where i get $800 a month rent on it.

We are both older and are thinking of selling the rental house and pay off our mortgage.

I bought the house as an investment as i only get $700 monthly pension and my husband gets $1700 a month.

My stepkids say sell my rental house and pay off the mortgage on the house where we live.
I'm not sure if that would be a good move.
I would appreciate any advice you can give me. Thanks

[Nutria]

Some questions:

• How much did you pay for the rental house? (You'll owe long term capital gains tax on the profits.)
• How much of a tax write-off do you get from the rental house?
• Is maintaining the rental getting to be a hassle.

[ladyofengland]

$65000 4 years ago. No tax write off. No hassle with the renters. I bought it with the idea when my husband passes i will still have a little more income.Hmm i didn't think about capital gains tax.

[kork13]

Wow, the value nearly doubled in 4 years?? That's remarkable. Capital gains taxes would be long term gains, at least, so depending on your total income, it could actually be 0%, or at worst, it will only be 15% (of the profit).

Are the current renters steady, long term renters (desirable), or have you had a series of renters? Turnover costs can eat into your income, so if you've only had a series of short-term tenants, I could see justification to let the rental go. But if you have renters you like who have been there for a while & intend to stay for the foreseeable future, I would say there's no reason to sell at this point (though you could revisit the option when these renters do decide to move on).

Another thought... Do you oversee the home yourself, or do you have a property manager that takes care of things? Although there is a cost to the manager, if he does a good job, it would simply your ownership of the rental, allowing you to maintain ownership.

The 2 big questions in my mind: 1) If you sell the rental & pay off your home, what are your plans for the money you would otherwise be spending on the mortgage? 2) How will you replace the income you're receiving from the rental?

Financially, I think it may be better to hold the rental, since it is actively generating income for you. But if you would personally be more comfortable not having to worry about the rental, then sure, go ahead & sell it. But since it seems that you mostly prefer to keep the rental, and it's only your kids yelling you to sell it, my inclination is to say that your kids need to butt out of your affairs (with all the love & tenderness imaginable).

[Nutria]

The 2 big questions in my mind: 1) If you sell the rental & pay off your home, what are your plans for the money you would otherwise be spending on the mortgage? 2) How will you replace the income you're receiving from the rental?

I think the point is that they would use the proceeds to pay of their current mortgage, and therefore not have to pay that anymore.

[kork13]

I think the point is that they would use the proceeds to pay of their current mortgage, and therefore not have to pay that anymore.

Oh? I understood it to be that the rental was worth just about as much as they owe on the current home, so by selling the one, they'd be paying off the other.

[Nutria]

Oh? I understood it to be that the rental was worth just about as much as they owe on the current home, so by selling the one, they'd be paying off the other.

How is that different from what I wrote?

[disneysteve]

So selling the rental would pay off your personal home just about. Instead of $800 income and $877 expense, you would have $0 income and $0 expense.

This assumes that you have enough in other savings to cover the difference between what you net on the rental sale and what you owe on the home. If you don't, what is your plan? If you sell the rental and lose the $800 income but still owe 5-10K on your personal home, how will you make the mortgage payments?

[TexasHusker]

If your rental income is paying your mortgage, why would you sell the rental?

You have two appreciating assets, one of which (your residence) is being paid for by someone else.

That’s a pretty darn good return on investment.

[kork13]

How is that different from what I wrote?

So selling the rental would pay off your personal home just about. Instead of $800 income and $877 expense, you would have $0 income and $0 expense

Ah! Following now! Sorry, I'm recovering from about 17 hrs of jet lag, definitely a little slow at the moment.

[disneysteve]

If your rental income is paying your mortgage, why would you sell the rental?

Exactly. Are you having issues managing the rental? Has it gotten to be a hassle for some reason? Why do your stepkids think you should sell it?

[Nutria]

Exactly. Are you having issues managing the rental? Has it gotten to be a hassle for some reason? Why do your stepkids think you should sell it?

Maybe the risk of being retired with a 20 year mortgage. Sure, the current tenants are no problem *now*, but what about in an economic downturn and they lose their jobs, or if they just move out and the next tenants aren't so good. Paying off (most of) the mortgage on the primary residence, while eliminating the second mortgage removes a *lot* of risk.

(I won't mention the possibility that the stepchildren are selfish jerks.)

[corn18]

Is all about risk and personal tolerance for said risk. There are so many variables, it's hard to answer the question. It looks like you are concerned about cash flow if your husband dies. Selling your rental and paying off your mortgage does nothing to improve cash flow. It's net zero cash flow.

Do you have any savings?

[ladyofengland]

Thanks so much for all your output. I truly appreciate all the good advice/ ideas i get from you all.
My renters are great pay on time and never any problems. My insurance co paid for new roof (I had to fight them on that one) and a new A/c/heating unit
due to lightening strike. The only problem i had with them was when they move in 3 yrs ago they asked if i allowed animals. Thinking a couple of dogs/cats i said yes. But as the house is on 3.5 acres, there are now multiple goats, chickens, geese all over the place. But the actual house they keep clean so I'm not really worried about their animals.

I think i will keep my rental house. I can always sell it later down the line if anything happens to my husband (75 yrs old) or sell our house and move into the rental house and would only have to pay property tax on it. In the meantime house prices may increase.

Something else the stepkids suggested was that we take out a Home Equity loan and convert out huge basement garage into an apartment. I don't know if their plans are to put me down there is their father passes. But that ain't going to happen. LOL

Thank you again for all your suggestions.

[disneysteve]

Something else the stepkids suggested was that we take out a Home Equity loan and convert out huge basement garage into an apartment.

So they want you to pay off your mortgage and then turn around and take out a brand new mortgage to renovate the basement? That makes absolutely no sense.