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Hello. New to the boards and hoping to get some financial advice.

I have a rental mortgage (and a renter) that has a higher balance than the house is worth and a home mortgage that has a higher balance than the home is worth. I make enough to comfortably cover payments on both every month as well as have a fair amount of money leftover every month (and am contributing already to retirement and kids college funds, etc.).

I lose a lot of money on my rental house every year and really want to just sell it but cannot do so in the current housing market without taking probably a 30K loss which I can't really do right now.

So what should I do with the extra money I have every month? Start paying down the rental mortgage so I can hopefully get rid of it sooner (but then I am kind of throwing away money just to break closer to even in a sale) or start paying down my home mortgage (100K higher than my rental mortgage) that I'll keep longer (and just hope the housing market turns around more fairly soon?

Or should I put extra money in a savings account so I CAN take the loss on a sale in the future?
 

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Tyler, how much money do you lose on the rental every year?
 

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I always find it interesting when people fret over the housing market. I've seen people who were upside down in their mortgage and panic, wanting to sell at a loss just to get out of the situation. Why sell and take a loss when patience will turn the situation around? Either the mortgage will be paid down or the market will recover or both. In the meantime, you have a roof over your head (or rental income) and as long as you can make the payments, there is no urgency to do anything.

Like you pointed out, paying against the rental mortgage will just result in you - maybe - getting some of the money back at the point of sale. That doesn't seem like a good plan. Personally, I would much rather have my house paid off. And contrary to Dave Ramsey, I would much rather be mortgage-free and still have some consumer debt (a small balance on a store credit card, for instance, or maybe even an auto loan). In times of crisis - and this economy is NOT great so the future is unknown - I'd rather be hunkered down in my mortgage-free house wondering how I'll come up with the property tax payment once a year than worrying about how I'll keep the bank's wolves from the door every single month. Face it, if your financial life suddenly got awful, wouldn't you just let the rental house go in foreclosure and be glad you could keep your HOME?

All that said, make sure you're taking full advantage of the tax write-offs on your rental. You want to make sure you're leveraging all your expenses to give you the greatest possible return on investment. While your rental income to mortgage payment cash flow may not look terrific, if you account for taxes in both your business and personal situation, you may end up coming out ahead.
 

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So what should I do with the extra money I have every month? Start paying down the rental mortgage so I can hopefully get rid of it sooner (but then I am kind of throwing away money just to break closer to even in a sale) or start paying down my home mortgage (100K higher than my rental mortgage) that I'll keep longer (and just hope the housing market turns around more fairly soon?

Or should I put extra money in a savings account so I CAN take the loss on a sale in the future?
Cookie is exactly right - stop fretting over market values, everything is the same as when your bought the houses, except for someone's version of their value. Houses always go up in value, just not every year. We owned 4 rental houses for 40 years, they all increased in value, one by over 8X, all at least tripled.

I continually refi'd our houses whenever one built up equity - eg, when a $75k house grew to $125k, I would refi and take out $50k. The extra $50k loan added about $300/m to my payment ($108,000 over 30 yrs). I placed the $50k lump sum in an 11%/yr index fund, that grows to $1,100,000 in 30y. I did that to all of the houses, some of them more than once. (Sold the last house last year, it had 4 mortgages over my 34 yrs of ownership, I owed more on it than I paid for it in 1981.)

But, as Cookie asked, are you properly accounting for expenses, depreciation, etc? Eg, for a $150k house, the annual Dep is about $5500/y, that cuts your taxes by about $1600/y - so that adds $145/m to your rent check. That is an 'expense' that you don't actually pay (until you sell). All other expenses that you actually pay - prop taxes, insurance, interest, are deducted from your income.
And always follow the first law of landlording - "never rent to a co-worker, an acquaintance, a friend, and never ever to a relative, you need an arm's length formal agreement with a stranger" If you've already broken this law (I sense tht you have?), try to fix it at the first opportunity.

have every month? Start paying down the rental mortgage so I can hopefully get rid of it sooner (but then I am kind of throwing away money just to break closer to even in a sale) or start paying down my home mortgage (100K higher than my rental mortgage)
No, no, and no. Do not BUY equity in your real estate, wait for the market to GIVE it to you. In 12 or 15 year the market will have doubled, you will have increased the rent by 50% - so you'll have lots of equity and your cash-flow will be positive.
If you are forced to sell your home due to a job move you might be forced to buy your way out. But never with a rental house - if you move away hire a property manager to keep it rented, repaired. (BTW, PMs usually have a waiting list of screened & qualified renters so you have few vacancies, fewer deadbeat renters, and higher rent.)
 

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CTyler,

My question to you is what financial plans do you have for the next 5yr, 10yr +??? Also do you have any thoughts of moving from your current residence?

Putting money in a saving account will not earn you much. You can look at other ways to invest. If you have any debts besides these mortgages, I would pay those off with the extra money first and make sure that you have 3-6month saved up for an emergency fund in case something happens.
 

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A few years ago both of my rentals were "underwater" due to the property values dropping. It was a loss to sell them and I could cover both notes so I kept both houses and kept renting them out because you don't realize a loss until you actually sell the house. Today 1 is treading water and the other is in the black. Plus when you are renting them there are all kids of tax deductions - taxes, insurance, repairs, traveling to the house...... due to these expenses I show a loss on both houses and do not have to pay taxes on the income.

After you have a 6 month EF I agree you should consider using the extra money to pay off any consumer debt and to pay on the house you are living in. Like Cookie said - easier to find tax and insurance money a couple times a year than a monthly payment.
 
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