Advice Please

[capblye]

Hey all,
My situation is this:
I own a piece of real estate (a rental property) that is completely paid off.
It generates a decent income, but nothing spectacular, as it is an older home and has a bit of overhead. The house appraised at about $375,000.00

I currently live in another house, which i have a 30 yr mortgage on at 5.5%. I am only in year 2 of the mortgage. This house is appraised at about $270,000.00 but i only owe about $189,000.00 (got a great deal).

As to other debt, the usual ... very little credit card debt and about $27,000 in auto loans.

Some would say, im in a fine position and should do nothing.

But, there is a chance my wife or i could lose our job, or some other major problem could come along.
In the current situation, in a pinch, i could sell the rental property, but the market being what it is, i would likely take a big loss. If things got bad, i would not have the time i would need to sit on the second property and wait for a good price.

So, my question is this:
Do i refinance my existing house mortgage for a point less (i know i can get 4.6) and consolidate my other debt at that rate.

Or, do i mortgage out the rental house for the full 80% and use the funds to pay off my exisiting mortgage and use the remaining cash to pay off all remaining debt and then maybe do some much needed improvements on the rental house. Possibly even some improvements on my own house.

My thought was this: the rental property would become the "sacrificial lamb" if things got bad for my family financially. We would have our own home secured, and cars etc paid for.
Our income would be put back into the rental property just as if we are paying our existing mortgage.
I think ... (think) the other benefit would be, the money from the Mortgage is tax free as it is a loan, and the mortgage payments are deductible on the rental property.
The rental property is in an LLC, so any deductions are helpful.

Any and all advice on which way to go is greatly appreciated.
Thank you in advance

[disneysteve]

I certainly wouldn't be borrowing extra money for home improvements that aren't absolutely necessary if you are worried about losing your job. I think refinancing to a lower rate makes good sense as long as you expect to be in your home long enough to see the benefit of the lower monthly payment.

To fully answer your question, though, we really need to see your current household income, total debt with interest rates and total monthly expenses. Also, what is your savings situation at the moment?

One option you didn't mention, for example, is to sell off the cars and replace them with cheap ones that you can buy with cash, thus eliminating $27,000 in debt without touching the houses.

[capblye]

Thank you for your input.

While i am aware that i didnt give out all of the facts, they arent as relevant to my question as you might think.

What i am basically looking for is an opinion on why i shouldnt flip the debt over to the secondary house.

If i owe 225k on my primary home and cars right now ... and i lose 40% household income, im in trouble, and stand to lose my home.

If i owe 225k on a rental property, with my primary home paid for and cars paid for, and THEN i lose 40% of my household income, i'm not as worried. Yes it would suck to risk losing the rental property, but my family would be safe.

The rental property does generate income, but the rental market right now is horrible, so i cannot count on that income longterm.

Thanks again for any and all input ... much appreciated.

[kork13]

I'm not fluent in the legal aspects of it, but I've been looking into the details of an LLC for rental properties for a potential rental property of my own, and I'm pretty sure that you can't use the rental property (as an LLC) to subsidize your private home/cars. In the event that something happened and the LLC was sued, you could lose the LLC protections, because a judge would likely rule that by using it to finance your private assets, you used the LLC as an extension of your private assets, and thus everything you own becomes at risk. You need to think of the LLC as a totally separate entity (company), with which you can't mingle money. Basically, what goes into and out of an LLC needs to stay with the LLC (except for the "salary" that you are allowed to define and draw from the LLC's assets). So you could mortgage the rental to pay for upgrades to that rental, but not to pay off your personal auto loans.

[snafu]

What leads you to believe that you and your wife's jobs are in jeopardy? What employment options are available in your region? It's expensive to re-fi as once again profit is for the bank/financial institution the debt/cost borne by individuals such as yourself and tax-payers generally. You need to run the numbers to determine how many years until you would break even.

I believe you would be better served posting your income/expense details as suggested by DS. You can likely find $$$ with careful budgeting to increase payments for auto/other debt while building EF.