A second property is fully paid for. We can’t borrow against our primary residence to pay for $75,000 rehab. Should we open the second property to a new mortgage or borrow from deferred comp? House is in prime location and we are planning to rent after rehab for $2,000-$2,500/month.
Terry Says: Only you know whether it is a good deal to invest more in this second property — the cost of the loan, ongoing costs of insurance, taxes, etc. vs the rental income. So I will leave that up to you. It’s a shame you can’t borrow against your primary residence, because that income would be tax deductible –and would come at a lower rate. Are you sure you can’t do that? And if you can’t, is it because you have such a large mortgage already??
If that’s the reason, then you might think twice about leveraging up to make the second property good for rental. That would be a lot of debt –and if you can’t find a tenant you could have quite a burden. I hate to see you borrow from deferred comp –(Are you talking about a retirement plan, such as a 40l(k)?) If the deferred comp is growing in a tax-deferred way, you would be losing all that growth.
You will have to do the numbers. But consider selling the property if the burden of debt would be too great.