To pay down and refi or not

[matt]

I currently have a rental property in La Costa (used to be my primary home) with an outstanding balance of 480K (jumbo loan), 28 years to go, fixed payment of 2,600 at 4.75% Taxes and HOA are about another 1000 a month and the property currently rents for 4,200.

Thinking about refinancing down to 417k and am currently getting quotes between 3.875 and 4 at zero points which drops the monthly payment by a little more than 600 dollars and doubles the current cash flow to about 1,200 dollars.

Torn between doing something else with the cash and having a lower monthly payment / increasing cash flow on a home that may be my fallback if my overseas job doesn’t work out.

I know many advocate that the dollar will erode over time and that long-term debt can work nicely if you can deploy the cash in the short-term more advantageously… but I haven’t found any low-risk investments yielding north of 4% and i’m quite risk averse. Interested in the group’s thoughts if anyone cares to comment. I’m not an expert on any of this so any thoughts/advice would be good before making a decision. Thanks…

[sdrealtor]

You have another option which is to refi the current loan balance. Its still a conforming loan and rate should be better than you have.

[XBoxBoy]

Matt,

Depends partly on how much cash you have. If I were you, I’d try to keep six months worth of living expenses in cash. That way if you lose your job or the renter stops paying rent, you’ve got a cushion. After that, I’d go ahead and pay down the loan as much as possible. Like you, I can’t think of any reasonably safe investment that pays more than you’re going to pay to borrow the money. So, why pay to borrow money when you’ve got cash?

XBoxBoy

[(former)FormerSanDiegan]

Assuming you have a sufficient cash reserve (good suggestion by XBoxBoy), I’d pay down and refinance.

You’d be getting $600 per month for an investment of $63,000 + closing costs.

Not gonna get that anywhere else.

[ljinvestor]

Matt- Are the refi rates owner occupied or investment property?

[carlsbadworker]

I am just curious. What are the kinds of people who rent $4200 a month? I am assuming they will be pretty decent tenants if you can find one?

[sdrealtor]

Thats the going rent for a newer home in the South Carlsbad/Encinitas area for 4BR and 3000 sq ft plus. IFIRC Matt is in LC Oaks and could be charging below market now. I’ve seen rents up to $6000 there and most of the homes with at least 4,000 sq ft are starting around $4500.

[Coronita]

[quote=sdrealtor]Thats the going rent for a newer home in the South Carlsbad/Encinitas area for 4BR and 3000 sq ft plus. IFIRC Matt is in LC Oaks and could be charging below market now. I’ve seen rents up to $6000 there and most of the homes with at least 4,000 sq ft are starting around $4500.[/quote]

Maybe it’s just me.. But it seems like spending $4000/month on rent….means time to buy,even if it means buying a crapier location… I mean, we’re talking $50k a year in rent….Ouch..But then again, maybe for some people $50k a year is pocket change, and the sad realization that I’m still poor because I think it’s a lot of money to be paying for rent.

[UCGal]

[quote=flu][quote=sdrealtor]Thats the going rent for a newer home in the South Carlsbad/Encinitas area for 4BR and 3000 sq ft plus. IFIRC Matt is in LC Oaks and could be charging below market now. I’ve seen rents up to $6000 there and most of the homes with at least 4,000 sq ft are starting around $4500.[/quote]

Maybe it’s just me.. But it seems like spending $4000/month on rent….means time to buy,even if it means buying a crapier location… I mean, we’re talking $50k a year in rent….Ouch..But then again, maybe for some people $50k a year is pocket change, and the sad realization that I’m still poor because I think it’s a lot of money to be paying for rent.[/quote]

If you think you’re only going to be in the region for a year – why would you buy. Hard to make up the transaction costs.

[Coronita]

[quote=UCGal][quote=flu][quote=sdrealtor]Thats the going rent for a newer home in the South Carlsbad/Encinitas area for 4BR and 3000 sq ft plus. IFIRC Matt is in LC Oaks and could be charging below market now. I’ve seen rents up to $6000 there and most of the homes with at least 4,000 sq ft are starting around $4500.[/quote]

Maybe it’s just me.. But it seems like spending $4000/month on rent….means time to buy,even if it means buying a crapier location… I mean, we’re talking $50k a year in rent….Ouch..But then again, maybe for some people $50k a year is pocket change, and the sad realization that I’m still poor because I think it’s a lot of money to be paying for rent.[/quote]

If you think you’re only going to be in the region for a year – why would you buy. Hard to make up the transaction costs.[/quote]

If I’m going to be only living there for 1 year, I definitely would find a place cheaper to rent, and skip the “niceness” factor

[sdrealtor]

How about if someone is giving you a generous housing allowance?

Another thing to consider is some renters view living in a nice community with access to great schools as a better option than living in a more modest area and paying for private schools.

[matt]

The rate i am getting is for investment not owner occupied property. Without the paydown to 417 the best i can currently do is a 4,5 refi, partially due to my credit being dinged a bit due to 2 small bills lost in the overseas move. The tenant was identified/screened through my realtor (who is managing the property) and was downsizing from a large estate in olivenhain but wanted to keep children near friends and schools. The home is 4000 sq ft LC oaks built in late 2004. I have seen higher rents achieved but am appreciating the fact that so far no issues and paying on time.

[Coronita]

[quote=sdrealtor]How about if someone is giving you a generous housing allowance?
[/quote]

I guess that would make a difference, but that brings me back to the original thing about me personally…that I’m a poor peon who wouldn’t typically get a relocation allowance *that* generous I think…:)

[quote]

Another thing to consider is some renters view living in a nice community with access to great schools as a better option than living in a more modest area and paying for private schools.
[/quote]

For a short term, I could tolerate a tiny home in a nicer part of town. But that’s just me. I know different strokes for different folks..

[Author]

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