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Pay off my condo or buy 2nd condo to rent?

I have a balance of $96,000 owed on my mortgage. My condo is worth about $200,000. I have a 5yr arm started in 2006 with a 2.38% interest rate now. I pay $190 for the mortgage and $198 for the escrow a month for a total of $388 a month. I have about $120,000 in cash and about $275,000 in stocks and $30,000 in IRA's. Just wondering if its feasible to pay the mortgage off saving about $200 a month although the intersest rate is not fixed being a 5 yr arm, or use the money to buy a 2 bedroom condo to rent. Real estate agents would want me to purchase a condo of course right, and financial planners don't seem to be able to help with that end of it.
Any advice would be appreciated or someone in Maryland that would be knowledgeable, neutral and trustworthy I could meet with.

Thank you

Joe

 
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May 20 2013 - US
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Answers (1)

Hi Joe,

It's all about ROI (Return on Investment). Right now the stock market is hot and mortgages are still cheap. You hate to sell stocks when the market is on an upswing, but there is no guarantee on what the market will do.

How much will a two bedroom cost and how much can you rent it for? What are the monthly HOA fee's, insurance and property taxes? You might want to talk with a local realtor to get these numbers.

My suggestion: Leave your stocks and the IRA alone - that is you security. If you purchase another condo for $200k, put $20% down (save most of your $120k nest egg), and get a conventional mortgage. Make sure the rent on the condo covers the mortgage, HOA, insurance and taxes. 

Talk with an accountant. You should be able to deduct mortgage interest, property taxes, insurance and possibly depreciation of the income property. As the condo appreciates (hopefully) it will be paying for itself and maybe a little extra for you.

People you should consult: Tax advisor/CPA, realtor, lender/mortgage broker and your insurance agent.

If everything works well, you might want to purchase another rental in another year or two. Many people cannot take the pressure of being a landlord ....
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May 20 2013
 
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