My Wife and I have no debt, aside from two properties. We were able to make our last vehicle payment today, and are set on paying off one of the mortgages in 2 years. I just dont know which one to pay off, so heres the scenario.

House 1 - This is an income producing property. We have an awesome tenant (K9 Officer and his family), and the home is in very good shape. The mortgage (including taxes/insurance) is $565 a month. We charge $1000 a month for rent. This property is split down the middle (50/50) with my Dad, so he gets half of everything. We currently have about 5k sitting in an account for any unexpected expenses for the property. We owe $63k on the balance of the loan.

House 2 - This is my residence with my Wife and 2 kids. Our mortgage is $900 a month and we owe $123k on the balance.

Both were 30 year fixed at near the same interest rate (both sub 4.5%).

So, which would be a better choice to pay off first?

This. Although.............

This isn't what you asked but at that cheap of an interest rate I'd buy more rentals and not pay off any of the mortgages.

I may be biased, I own several highly leveraged rental properties.

Also, your emergency cash for that rental isn't enough imo unless you have other access to quick cash or credit. With one property I'd not feel comfortable with less than a 20k cushion. Major repairs aren't cheap and I manage an industrial mechanical company for a living. A major sewer repair, roof, foundation problem can get expensive quick if insurance doesn't cover it or drags their feet.

If you hit financial hardship, you'd rather own your home than own a rental property in which you don't live

Your rental property is paying for itself.  Gold mine...no....but it's costing you nothing (and you have some change in the bank in case anything needs repaired).


Hit your personal mortgage hard IMO

Is the mortgage interest on the rental property fully tax deductible?

I would refinance both.We just locked in last wed at 2.75.Rates are freekishly low right now.

Where?   How??

This, I'd bet it isn't so paying this one off would result in some savings by keeping your primary residence interest rates deductible.

but paying off number 2 will obviously take twice as long

Always pay off your primary residence 1st. If you can't find a tenant and have to lose a property, lose the rental.

Who is the lender?  And 15 or 30 year mortgage?

Given the same rate, I'd pay off the smaller balance first.

Probably a 15 yr if the rate is in the 2's.



 

How much is house 1 worth? refinance house 1 at 80% value and pay down house 2, use the higher mortgage of house 1 as a tax write off against rent?

I'm not sure a bank would finance such a small amount

I am unfamiliar with the tax code on investment property. Do you get a more favorable deduction or less favorable on the expenses associated with the rental property? If would generally lean to paying off your residence first though.

-shooter

If your dad is getting half the proceeds, I hope to god he is paying off his half of the mortgage as well, otherwise he's screwing you.

 

Id pay off your primary residence first then negotiate a deal with dad on how to pay off the investment where you both pay it off or you buy out the equity he has along with a reasonable slice of future earnings for the next couple of years.