Investment Property Monthly or Bi-Weekly?

[Courtenay]

My sister and I have an investment property and the rent is covering the monthly mortgage. Should we pay the mortgage monthly or every two weeks to speed up the payments?

She thinks that we should do it monthly to keep the mortgage as high as possible and get the extra write off on the tax and earn more from the monthly rent. I`m wondering if we should speed up the mortgage (pay it every two weeks). We don`t really need the extra tax write off at the end of the year. Neither of us is really sure what is best. Thoughts? Ideas? Thanks!

PS I just joined and this is my first post. What a great site!

 

[invst4profit]

More detailed information is required to analyze the situation.

What amount of your rental income is left after paying your monthly mortgage?
Do you have an emergency fund set aside for vacancies, major repairs etc?
Does the rent cover expenses?
Do you have a positive cash flow?
What is your exit plan for the property?

 

[seanverret]

Can your rent cover three biweekly payments in a month, because you will have two months a year when three payments come out of your bank account.

We prefer to go with monthly payments, so we know what our cash flow will be.

 

[vandriani]

If the property is truly cash flowing and if you can cover the 3rd payment (stated by Sean) and you don`t really need the money and you are not looking to invest in other properties, then you might want to consider the 2 week payments. If any one of these is not true then you may want to consider the monthly payment.

 

[LeighF]

Currently I have my payments coming out bi-weekly, but since my rent money doesn`t enter my bank account until the end of my month, I find that I am dipping into my personal money to cover the payments. I am going to move mine to monthly, at the end of the month.

 

[Thomas Beyer]

QUOTE (Courtenay @ Jan 16 2009, 01:08 PM) My sister and I have an investment property and the rent is covering the monthly mortgage. Should we pay the mortgage monthly or every two weeks to speed up the payments?
She thinks that we should do it monthly to keep the mortgage as high as possible and get the extra write off on the tax and earn more from the monthly rent. I`m wondering if we should speed up the mortgage (pay it every two weeks). We don`t really need the extra tax write off at the end of the year. Neither of us is really sure what is best. Thoughts? Ideas? Thanks!

PS I just joined and this is my first post. What a great site!
Usually you pay a mortgage monthly as this is how the money comes in .. but it depends on your goals: do you wish to pay off the mortgage as fast as possible ? then pay 2x/month or use a shorter amortization .. but if you wish to build wealth, i.e. equity, you should use the add`l cash as a reserve, for upgrades (and thus higher rental & value upside) or to buy more appreciating and cash-flowing assets.

Usually you pay no taxes on a property until you sell as you can depreciate a piece of real estate by 4% annually, which usually offsets any income after expenses like: interest, utilities, property taxes, ...

Remember: cash in king, and cash-flow is (only) queen.

I rather have the cash in the bank for emergencies or upgrades or purchase opportunities than a lower mortgage .. as a paid down mortgage yields the same "equity" for you, but one is liquid and one is not !!

 

[RobMacdonald]

The decision will usually be dictated by your long term goals. When you purchased the property, you should have created a reserve account as Thomas mentioned above. That would keep you from dipping into personal money on a regular basis and could cover that 3rd payment in a month, not to mention any possible vacancies.

You could quite easily keep the payments monthly, then allow the cashflow to accumulate. Once you reach enough excess in your reserve account, and if you long term strategy is to pay down the debt, then just apply an extra monthly payment as `double up` payment. Most banks will allow this in addtional to your 15% annual prepayment limit.

In the long run, the interest cost and time to paydown the mortgage will be very similar. Remember, paying biweekly is just making one additional monthly payment every 12 months.

 

[kboughen]

QUOTE (Courtenay @ Jan 16 2009, 03:08 PM) Neither of us is really sure what is best. Thoughts? Ideas? Thanks!
If you and you sister have other debt that is not tax deductible such as a mortgage on your principle residence, you may want to consider paying that down before paying down the investment mortgage.

 

[bluerockgroup]

I`d definitely have to agree with Thomas. Keep your eye on the cash flow and move excess cash to the Emergency Fund. The money in the bank will be important for several reasons including a run of bad tenants, emergency repairs or even in a mortgage application if the bank was wondering where the downpayment `could` come from.

-Grant

 

[Mike Milovick]

QUOTE (Courtenay @ Jan 16 2009, 03:08 PM) My sister and I have an investment property and the rent is covering the monthly mortgage. Should we pay the mortgage monthly or every two weeks to speed up the payments?

She thinks that we should do it monthly to keep the mortgage as high as possible and get the extra write off on the tax and earn more from the monthly rent. I`m wondering if we should speed up the mortgage (pay it every two weeks). We don`t really need the extra tax write off at the end of the year. Neither of us is really sure what is best. Thoughts? Ideas? Thanks!

PS I just joined and this is my first post. What a great site!


Hi Courtenay;

Tom and Rob definitely on right track.

It really comes down to one easy question: what is your goal?

1. Cash flow (which would mean paying monthly, less money toward mortgage, more money for yourself).
2. Equity build up (which would mean larger money put towards mortgage and paying mortgage down as quickly as possible)

Mike

 

[Courtenay]

QUOTE (MikeMilovick @ Jan 18 2009, 10:21 AM) Hi Courtenay;

Tom and Rob definitely on right track.

It really comes down to one easy question: what is your goal?

1. Cash flow (which would mean paying monthly, less money toward mortgage, more money for yourself).
2. Equity build up (which would mean larger money put towards mortgage and paying mortgage down as quickly as possible)

Mike


Thanks for your collective wisdom. Recently we re-mortgaged and currently we have about $150/month positive cash flow and are able to cover one and a half month`s mortgage if need be (in our reserve). My concern is that with falling prices the market value could get close to the mortgage owed so I wanted to pay down more of the mortgage for safety. What I`m hearing from the group is that it might be best to keep building our reserve fund to cover us should we need it for expenses etc.

It really comes down to one easy question: what is your goal? (Mike)

Currently it`s cash flow...but as I said with prices softening that may be changing.

Thanks for all your help, this has been very useful.