Can't sleep: need help figuring out what has to give

[jIM_Ohio]

Thanks. That was what I was thinking too. Our situation is more complicated and I didn't want to bore anyone. The reason we're short $900/month is that we're also buying another home (the refinancing is a rental). Also going for best loan interest rate of 4.375 over 15 year fixed. To answer jlM-OHIO questions: Our monthly budget is about $6,000 expense and $5,100 income (with new loans kicking in). For the rental, we used to pay $1,375 a month for 30 year fixed (we've paid 8 years so 22 years to go), and now would be $1,549/month for 15 year fixed. For the other house (our home-to-be)the payment is $1,254/month for 15 year fixed. The income from the rental is included in our monthly income above (We put 75% occupancy to safeguard against periods without tenants). In addition, we have $10,000 cash for covering emergencies or 10 months of making up for $900 a month gap. For our retirement: We have the $78,000 and also a piece of land that we can't sell now because it's light industrial and no buyers at the moment and we will have income of rental house. Here's more details than you wanted. The question we don't know the answer for yet, is how much would we lose if we pulled out a chunk of our retirement investments. We are wondering if it's better to count on our income from rental (the whole amount) 7 years earlier and invest our retirement savings into it now (the stock market is so volatile anyway, maybe investing in a house is smarter). Or the alternative is to pay for another 7 years (and higher mortgage loan interest rate) and save our retirement savings as is. I'm not sure if I'm clear on that but that's the way I see it.

Why would you squeeze cash flow to go into a negative cash flow situation?

If nothing changed, existing cash flow is tight
If you refi rental to a 15 year, you will actually have negative cash flow- that cannot be good for any sustained period of time.

Rentals are best if you have interest only loans and do not pay down the principal (keep property fully leveraged) or rentals are best if they are 100% paid off (all cash flow from rental is profit). The taxes are the reason for this logic, as its been explained to me by other landlords.

The more money you tie up into the rental, the worse an investment this is (IMO) because the rental is not liquid- you would be depending on your credit score and the bank to tap into any equity you create for yourself.

Do not change rental loan... if you want to own it in 15 years, just make a larger payment on it (do not refinance). If you do refinance, keep the payment as low as possible (30 yr fixed or interest only) and make payments larger than the minimum.

Keep the risk of the investment property as low as possible- meaning low payments month over month and high cash flow month over month.

[Hector]

You mentioned ‘Just a clarification: we are not buying another rental property, the home we're buying will be our residence, (we are currently renting)’. When you say, buying a home, actually it is owing to bank!

I don’t think that planning on spending more than what you earn or you might earn is a good idea. I think you should not buy new home. You should continue ranting. Refinance rental home for 30 years with lower interest rate. Be aggressive and pay it as soon as you can. Then save for down payment and buy new home after that. And yes, don’t forget about emergency fund and retirement accounts.

[maat55]

I would sell the rental, you do not have good enough cash flow. Your emergency funds are too low and your a disaster waiting to happen.

I would get out from under an out of state property and look for an better cash flow property in your state.