Help with my properties/mortgages, please!

[audioslave]

Here's the situation I am in, and I am not sure what to do. I just know I need my money to start working for me.

I have one home which I owe $350,000 on. I have a rental which I owe $140,000 on and another rental I owe $35,000 on. I have $40,000 to put toward an investment. My problem is I am self-employed and banks won't allow me to refinance, and on my two bigger mortgages, I have above-average rates right now. What I am wondering is if it makes more sense to...

1. Pay off the house I am able to in order to get a rental income of $1,500 a month seen as profit, as well as one less loan liability on me, which would help me refinance.

or

2. Pay down the big mortgage and keep just letting the rentals pay themselves off.

Thoughts? Advice?

Also, right now I am writing off my mortgage on the home I owe $35k on because it is a rental. I rent it for what I owe on it, so (I think) it washes itself out come tax time. If I pay it off and collect that $1,500 as income, am I right in that I will have to essentially pay 25% of it then as taxes? In that case, it sounds like it wouldn't make sense to pay it off because after paying the tax man, my profit is only around $1100. Is that right?

Thanks all!

[Jerry91]

In my opinion, the first option will be a good choice for you as you will be able to pay down a mortgage, get rental income as well as get rid of one liability.

[asdf]

What are the interest rates on all of the loans?

[Petunia 100]

If your goal is to refinance, I suggest you talk with your lender, or find a good local broker. Ask them what it will take for you to refi.

[snafu]

Most of the financial institutions are awash in money from Quantitative Easing so that they can provide loans. you need information and a financial institution that will re-finance your mortgage at current rates. I'd start with a list of electronic mortgage lenders, credit unions and smaller banks. The $ 40,000. can be temporarily parked in savings or MoneyMarket until you've exhausted options.

[ashley_s]

For a self employed borrower, now is a great time to be strategizing for how to qualify for a mortgage. I am currently meeting with all of my 1099 and self employed borrowers looking to buy first quarter of next year to plan for next year's tax filing.

You need to find someone local who understands underwriting guidelines very well who can review your schedule C or partnership/corp taxes depending on how you file. There are certain line items and portions of line items that can be added back in. ALSO, the new mortgage guidelines going into effect in January have changed the calculation for rental income as well.

I personally wouldn't move any money around until I got that much information to know your options. I personally love complicated taxes because it is like a puzzle and I love puzzles, but I know most loan officers aren't like me. :-)

[dczech09]

You need to look at this from a straight-on point of view. The only other person so far who is looking at it that way is Jerry91.

The fact that you are looking into refinancing is moot. The reason why is refinancing will not change how much you owe; it will only change your rates and possibly terms of payment. You have the following debts:
$350,000
$140,000
$ 35,000
TOTAL: $525,000

You owe $525,000 in the end. Stop viewing it as your properties owing this money. You are self-employed (as a property manager I assume based on the information you have given). Since you are self-employed, the banks will hold you personally responsible and liability for the debt. And since you own the properties, you are the only one paying the debts once all of the smoke clears. You will be paying these back at some point; whether that is by selling or cash-flowing is up to you.

Once you view things from that scope, it is pretty easy to see that you should just pay of the $35,000 loan immediately. First of all, you eliminate a liability, which is a plus. You also free up $1,500 of cash flow.

The fact that you are able to write off the income from this property for tax reasons is also moot. When you write off that income from taxes due to self-employed expenses matching (or exceeding) the revenues, your savings is simply what you would have paid in taxes otherwise which would only be about 25%-%35 percent based on your bracket. You still net more in the end.

So yes, option 1 is best!