This is a cross post with Financial Independence. Placing it to see prudence of investment community. Do not say that I can invest in stocks or SPY and earn more. Since I plan to retire, I want to be out of mortgages and retire with tax free (due to depreciation) rental income
I have three home loans, planning to pay off the loan reverse of Dave Ramsey rule. Debate whether I am right or wrong.
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Rental Multiplex A has $733k mortgage at 3.5% fixed 30 years, monthly PITI=$5050, Depreciation (tax deduction benefit) $29000/year, rent $4050/month
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Rental Multiplex B has $290k mortgage at 4.25% fixed for 30 years, Monthly PITI=$2450, Depreciation (tax deduction benefit) $14000/year, rent $3150/month
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Primary home, C has $850k mortgage at 3.625% fixed for 30 years, Monthly PITI=$4900, no depreciation for Primary, but tax deduction is 1/3rd of 3.625% that gives me reduced mortgage rate 2.42%.
If I pay down primary home mortgage, I can reset PITI at reduced rate.
I bring depreciation here as that is tax deductible. Assume I have 33% IRS and 10% CA tax, overall 43% taxes.
Now, I am around 56 age, planning to retire soon in 5 to 7 years. I have $750k cash to pay down my mortgages so that I can free up from mortgage world. I have Dave Ramsey option 1) Pay full Multiplex B 290k (highest rate 4.25%) and then pay down primary 850k with balance 360k, then reset PITI. But, I find this is not reducing cash flow, but has the risk of keeping the loan for longer period.
I see paying down Multiplex A (733k) will release my mortgage (lowest rate mortgage) a lot, provides me tax free money that I can use to pay faster Multiplex B mortgage. This provides me tax free cash flow and I can pay off both rental homes mortgages in next 5-7 years.
In such cash, I get $7200 rent (tax free after depreciation) that can be used to pay my primary home mortgage. I may have full primary home loan which is discounted by mortgage tax deduction
I am going against Dave Ramsey principle. Do you see whether I am right or wrong?
Submitted April 16, 2017 at 12:30PM by firebyrealestate http://ift.tt/2nRLZcu
