Is Your Rental Draining Your Wallet?

A Mortgage Fix To Make It An Investment Again

It is so important to do the math to find out if your investment property positive cash flows. It is the difference between your rental working for you, or working against you. With some landlords seeing rental income drop over the last two years, it is a good time to revisit your rental property math. I will show you how to calculate cash flow and a possible fix if you do find you are feeding your rental instead of it feeding you!

Rental Cash Flow Calculation

To determine if and how profitable your rental properties are, do the following math:

monthly mortgage payment

+ any monthly utilities covered by you

+ home/fire insurance premiums / 12

+ condo fee (if applicable)

+ repairs and maintenance costs

+ annual property taxes / 12

= TOTAL MONTHLY EXPENSES

TOTAL MONTHLY RENT - TOTAL MONTHLY EXPENSES = CASH FLOW SURPLUS OR DEFICIT

Some investors factor in the vacancy rate and property management cost as well, but the above absolutely should be covered by your rent.

Where do you stand? Are you making money or losing money each month? If you are losing money, consider a possible mortgage fix.

Refinancing To Regain A Positive Cash Flow

Many people think refinancing is only done to pull equity out or pay off debts, but the ability to reset the structure is another key benefit. By stretching out the amortization again, you can drop the payment to bring down monthly expenses.

Example:

You currently own a rental valued at $400,000 with a $280,000 balance and 15-year amortization at 2.79%. Your monthly payment is $1903. If you refinance (even at the same 2.79% rate) and push it back out to a 25-year amortization, it now has a monthly payment of $1295. That increases your rental income by $608/month.

And What If It Still Negative Cash Flows?

So what if you do not have the equity position to refinance, or even after pushing out amortization you are still not positive cash flowing? It might be time to rethink holding the investment property.

If you have a negative cash flowing rental property, please call me to explore your mortgage fix options.