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We (spouse and I) have 58% equity in our home with a loan balance of about $230k at 3.375% with 28 years left on a 30 year loan. We also have a very adequately funded savings and retirement account as well as college savings for the child. We have no other debt besides our 4 home mortgages. I make enough each month to pay all the bills and still put away about 25% of my income which, we do. We have 3 single family rental homes (in another state) that have significant equity and are rented long term with positive cash flow. All 3 are financed at about 4%. We have traditionally kept the rentals near 70% LTV in order to keep our LLC's expenses up for tax purposes and then leverage the funds for other investments. This strategy has worked for us for the last 15+ years of residential real estate investments. We have about 40% or less LTV on the houses, that equity is in excess of my $230k primary residence loan.

My question is this; should I leverage the rental equity to pay off the primary home mortgage?

Again, our brokerage account is sufficient in our minds, as well as my 401k and IRAs. If we did this, the rentals would still be cash flow positive (just less free cash per month) and there would be no taxable event created by doing the re-fi (such as the sale of a rental home). This would allowus to be debt free in our personal finances while maintaining our LLC's debt at a serviceable level. At this time I do not have another investment home purchase planned nor do I have an other large investment on the horizon.

This year I'm paying about $8400/year on interest, and over the next 10 years, paying the house off will save me a little over $77,000. Given the new tax law, I don't see my primary home interest as a tax advantage.

Last piece of the puzzle, I have a medical condition that could put me out of work and on a disability program paying 50% of my income in the near future. Though not likely to happen anytime soon (5-10 years), it does weigh on my mind.

  • Something sounds off about LLC here. If the rental units are owned by LLC you can't just use the units to leverage the money to pay for your own property- that is either considered a loan from LLC to you on which you have to pay percentage or a taxable event as a cash bonus that will be taxed. – Alexus May 16 '18 at 23:09
  • Do you live in a jurisdiction where interest on your home mortgage is tax deductible? – Rupert Morrish May 21 '18 at 3:33
  • I don’t pay any taxes in my state aside from my property taxes, so it’s all a Federal tax benefit exercise than anything else. I think the responses about restructuring the investment capital, the LLC limitations with regards to transferring assets all gave us the right plan. We’re going to restructure the rental debt and hold it for the next buying opportunity and then take the extra income that was going to savings & brokerage and steer that to the home loan. That gives us the debt reduction and flexibility to change course given market changes in the future.Thanks for the replies – milehigh May 22 '18 at 14:40
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Prior to the new tax law there were debates related to mortgages: - big vs small; - pay off before retirement vs keep a mortgage during retirement

One important part of the equation was that having a mortgage and paying the interest added to the property tax and the state income tax could easily put a taxpayer over the standard deduction. There would be debates about if it was worth the expense, but it wasn't clear which was better.

Now with the new tax law limiting the amount of the property tax and state income tax deduction having a mortgage may not be enough to exceed the higher standard deduction. Once that benefit goes away the mortgage becomes less valuable - at least tax wise.

But you also have mortgages on your investment properties. Those mortgages will still save you money on your taxes. Therefore it may be advantageous to shift the mortgages from the main home to the rental properties.

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Given the medical condition possibility, I would definitely look at getting the personal debt paid off. You said your saving and retirement accounts are "well funded" - if that means you would be comfortable with not contributing more to them for a short time period, then I would do a hard run at the debt, by stopping the current investment/savings and using your current income to pay it off as quickly as possible, rather than just shuffling debt around.

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