Dear MarketWatch,
I have a rental property that’s worth $175,000, and I owe $53,000. My primary home is worth $265,000 and has $108,000 left on the mortgage.
My question is this: Should I sell my rental to pay off my primary and be mortgage free? Or should I refinance my rental — and pull cash to pay off my primary mortgage?
Signed,
Worried About the Market
‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.
Dear Worried,
Refinancing may not be your best move.
Mortgage rates are very high, at 7.3% according to Mortgage News Daily, for the 30-year. If you have a 15-year mortgage, or an adjustable-rate mortgage, you may be able to get a lower rate (but not that low, compared to what you could’ve gotten a year ago). So I doubt if that would make sense for you.
If you’re sick of renting, then selling may be your best bet.
If you sell your rental, you’d get, as you say, $175,000. You’d be able to pay off the $53,000 mortgage on the rental, and the $108,000 you still owe for your primary residence, and be fully mortgage-free.
Being debt-free is psychologically so liberating. Plus, after fees or other miscellaneous expenses, you’d still have more than $10,000 left over.
But a small warning: Adjust your expectations. The housing market is in a bit of a downturn. Sellers have been making more concessions to offload their home. Redfin RDFN, -6.29% says that a record number of homes for sale each week are seeing prices being slashed, at 7.9% (up from 3.7% a year ago).
“Being a landlord is a lot of work, but the prospect of becoming debt-free brings with it such financial freedom. So go for it — sell that rental, if you think you’d get a good price.”
This includes throwing in price cuts, or offering to help buyers buy their mortgage rate down. If you think your house is going to sell at 2020 or 2021 levels, and you’re going to get multiple offers, then you may need to talk to a realtor to reassess. But I’m not 100% sure if your $175,000 valuation is reflective of that.
Renting is difficult, right now. Rents are going down, according to Apartment List, and the market is expected to cool further into the winter. Short-term rentals are also struggling right now, as my colleague Levi Sumagaysay reported in October. Airbnb hosts are saying that bookings have plunged, and that they’re pivoting to long-term rentals now.
So if you find that your monthly costs are going up, and you’re unable to raise rents to meet your expenses, your profits will shrink — sell. Being a landlord can be a lot of work. Plus, being debt-free gives one such financial freedom. So go for it — sell that rental, if you think you’d get a good price.
Just make sure you are 100% sure. Once you sell, there is no going back.
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