Profile picture for farabeckoffers2

Pay down mortgage or renovate

My wife and I have a rental property that we owe ~$206K on, house is worth $220K.  We have saved up approx. $80K we can use to paydown the loan.  Interest rate is 4% and we still pay PMI.  The rent covers the mortgage, but we pay out of pocket for HOA and Property management so we don't break even completely.  Paying it down would probably do this, but if we renovated, this would allow us to charge more rent.  Not sure which way to go.

Any suggestions?
  • January 04 2014 - Powers
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Answers (4)

Profile picture for sunnyview
I'd cost out putting 30K in to get the PMI dropped and talk to your lender about getting the amortization table updated. I would not put all your eggs in one basket, but if doing some basic cosmetic updating will get you more rent, then I would target the areas that will get that rent and be careful not to overimprove or pay to alter the structure itself since returns for that are often low.
  • January 06 2014
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I think that it would benifit you more if you did a bit of both. If you took half the money and renovated the property and then refinanced your rental buying it down the other half that it would be most benificial as you would be able to raise the rent and get rid of PMI at the same time as opposed to either or.

Hope this helps
  • January 06 2014
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Generally if you pay enough down to get to 80% loan to value or below you can have the pmi removed. 80% of 220k is 176k, if you owe 206k, I would consider the option of paying the loan down to 176k. You then still have 50k for renovations in order to be able to raise the rent. If you drop the pmi and raise the rent, it should provide a significant difference in cash flow.
  • January 05 2014
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Profile picture for Dave Salzman Team
Would renovations increase your rent receipts more than what you pay in PMI?

I would probably pay down the loan to eliminate the PMI. This way you have savings each month, regardless of what happens to the rental market, economy, etc.

Be sure to check with your lender to be sure your can eliminate the PMI by paying down the loan balance.
  • January 05 2014
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