My House & Mortgage

I'll start describing each of my investments, largest to smallest. The first investment to discuss is my house and mortgage.

Synopsis

I bought a small house in the center of a large city in March 2000 for $100,000. I only put about 10% down, but did not have to pay PMI as my real estate agent did something funny with the numbers. I think the real price of the house I bid and was accepted at was like $95,000 but then he rolled PMI into the mortgage. I don't know what they did (I should have understood better), but looking back on it, it really didn't matter. It quickly doubled in value.

My initial mortgage for the $90,000 ($100,000 - $10,000 down) was at 8.5% !! That was normal at the time, but seems incredibly high right now. I was paying something like $940 a month ($745 for mortgage + PMI + insurance + property taxes).

Job Change and Moonlighting as a Landlord

I was making about $80,000 a year. I did that for about 2 years. I then got an offer to transfer to the Japan branch of the company I was working for - A nice raise (or just salary plus substantial relocation expenses - Tokyo is expensive!). I rented out the house to a friend and was collecting about $850 in rent a month. It was a slight loss but it was what the market would bear, I didn't have to spend any time finding a renter, I trusted the person renting it, and could get an extra $850 in my bank account to make interest off of (the security deposit).

The Housing Boom

A year went by and the house quickly went up in value soon after that due to the housing boom experienced in many large cities. Interest rates also quickly went down after that. I had it re-assessed at $150,000. I had magically gained like $50,000 in equity! At that time I owed $87,000 on the mortgage and had a house worth $150,000.

I tried to re-finance my mortgage at 6.00 % for 30 years. Problem is, I had trouble getting a new mortgage since I only had foreign income that could not be verfied!?!?! I was working for a Japanese compnay and being paid in Yen. I had $60,000 in collateral. Is this unheard of to American banks?!?!?!?! (I later found out the mortgage company I was dealing with was very inexperienced and not very professional.) It turned out to be the best thing that could have happened.

Home Equity Loan

My mom told me that my bank was offering Home Equity loans at better rates, less years, and approval was very simple. I just showed them the reassessed value of my house, they verified my credit (and didn't care about my Japanese income). I got a 20 year loan at 5.25% !!! I paid off another $10,000 as well when I applied for the loan. That comes to just $550 a month.

There are no management fees to deal with and the property taxes are quite reasonable at $1800 a year.

Looking back on the housing boom now, I wish I'd have bought something larger or 2 properties, but you can't look a gift horse in the mouth :) 2.5 times my value after only 6 years is something to smile at.

Summary

So, as it stands right now, I have a house worth about $250,000 (based on web studies, re-assessments, and comparable properties that have sold in the last year next to mine). I owe just $74,000. I pay $550 + $200 = $750 a month (property taxes and insurance pro-rated from the year). Furthermore, I am still renting it and can now get $975 a month for it (plus 2 month security deposit to make interest on!).

I get $225 a month income from renting the house with a minimum of hassle.

Strategy

Obviously, if you look at my numbers and accounts, I could pay off the house tommorrow if I wanted. I could just sell some of my mutual funds and pay off the entire $74,000 remaining on the mortgage. However, that would hurt me in multiple ways. I would not be able to deduct the interest paid on my mortgage from my taxes each year (about $2000). Although, right now, most of my income is foreign. However, the income from my house rental (and maybe capital gains from Money Market funds?) would be taxed if not for this extra $2000 I can write off. In the future, if I move back to the US and have my main source of income from there, that will $2000 less lost to taxes each year (of course, it is becoming smaller and smaller each year as I pay off the mortgage and at that time might be like $1500). I don't see any reason to pay off mortgages early, unless you are not able to recoup the tax savings from the deductions. I guess once the interest I am paying each year exceeds the amount I can deduct each year, then I am better served just paying it off all at once and saving on the interest paid that is lost from there on out.

Property Management

I have also been debating using a property management company to find me renter's. They could probably get me $1300 a month (minus a 10% fee) instead of the $975 I currently get. I will probably pursue this once my current renter moves out and it is time to find a new tenant (estimated in 2008).
Right now, I feel I should have a little more money invested in real estate and less in the stock market. Therefore...

Another Property

If I do move back to the US, I would like to continue renting this property and purchase another property where I would then live. Only problem with this, is I think I will have another hard a time getting a new mortgage since I will have no history of consistent income in the US when I move back. I am not sure if I could borrow off my current property's equity as collateral (currently about $175,000). Or, just get another home equity loan like I currently have (and based on my current house) and apply it to another property?