Ask Terry Questions 2nd property paid for but want to invest in rehab

2nd property paid for but want to invest in rehab

By Terry Savage on April 28, 2015 | Housing / Real Estate

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.

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