Rental Property - Refinance, Don't SellWritten by Steve Gillman
You own a rental property for years, and never see "big pay-off." Is it time to cash in on your investment, now that you've paid down mortgage, and values are up? Maybe not.
The Problem With Selling
Selling means you'll have to pay a large capital gains tax. This can be avoided if you reinvest through a 1031 exchange, but then point is that you want your money, right? Also, a good rental gets more income as rents go up. Do you want to lose this inflation-indexed retirement plan? What's alternative?
Refinancing Rental Property
Have you considered that if you refinance, you can get much of your gain out of property, without paying a penny in taxes? Borrowing money is not a taxable event. You can take it and spend it however you want, and still keep your rentals.
Let's look at an example. Suppose you have owned a small apartment building for years. You bought it for $240,000, with a downpayment of $40,000, and mortgage payments of $1650 monthly on balance. Now it is worth $400,000, you only owe $120,000, and your cash flow is around $800/month. How do you get at that equity?
The Debt Test: are you making out a mountain out of your mortgage?Written by Rachel Lane
According to Council of Mortgage Lenders, first-time buyers are most susceptible group of homeowners to debt, as they are more likely to have higher loan-to-value ratios and commit a higher proportion of their income to mortgage repayments. Despite their susceptibility to debt, there is evidence which indicates that insurance take-up and employee benefits provide recent first-time buyers with a safer foundation than general population of mortgage borrowers.
The Council of Mortgage Lenders (CML) has become increasingly concerned about ability of current and future home-buyers to pay back mortgages in event of changing circumstances. Over past five years, CML and its partners within Sustainable Home-ownership Initiative, have sought to improve this issue. Contributing factors to problem include increasing personal debt levels and a less certain economic environment. This has provoked concern about sustainability of home-ownership and consumer understanding of financial products, ensuring that issue of mortgage risk is at top of agenda for UK Government, industry regulators and public as a whole.
Over last year, Sustainable Home-ownership Initiative has debated most effective move forward to increase home-buyers’ awareness of potential debt and protection from unforeseen events with insurance products, specifically Mortgage Payment Protection Insurance (MPPI). The Financial Service Authority is leading way to help raise awareness of debt prevention with “Debt Test” initiative.
According to research carried out by Council of Mortgage Lenders, two thirds of recent first-time buyers say that an online debt test designed to help them assess potential triggers of debt and highlight future borrowing risk would be useful.