This week we're going to sell our rental house to pay off our personal residence!
THE SCENARIO:
Building off the last couple of articles, we're going to stick with my mortgage. To recap, here are the pertinent details:
I put $100,000 down and borrowed $350,000 to buy a house 34 months ago. The mortgage amortizes fully over 30 years, has monthly payments of $2,241.09,and the rate is 6.625%. I still owe $338,465.83, and thanks to a generous inheritance from my late Aunt Matilda, I bought a rental house, which is putting money in my pocket each month.
The terms of the rental house mortgage: 30-year amortizing loan at 3.375% interest, $150,000 originally owed (the house is worth $250,000, but I made a $100,000 down payment). The payment on the mortgage is $663.14 per month, and my rent after expenses is $1,094.50.
a) After 10 years has passed, how much do I owe on my home's mortgage, assuming I make only the required payment each month?
b) After 10 years has passed, how much do I owe on my rental house's mortgage?
c) If my rental house appreciates in value at 6% per year for those 10 years, how much is it worth at the end?
d) If it costs 10% in commissions and fees to sell a house, how much money could I get out of selling my rental house after 10 years?
e) How much of that money would be left over after I repaid the remaining mortgage on the property?
f) If I used the proceeds to pay down my home mortgage, how much would I still owe, or how much would be left over?
THE SOLUTION:
a) N is 120 (10 years is 120 months), I/YR is 6.625, PV is$338,465.83, PMT is -$2,241.09. I solve for FV and determine that after 10 years, I'll owe$275,309.25.
b) N is 120, I/YR is 3.375, PV is $150,000, PMT is -$663.41. I solve or FV and determine that after 10 years, I'll owe $115,619.58.
c) Since we're talking about annual compounding, I set P/YR to 1. Then N is 10 (10 years), I/YR is 6 (6% annual appreciation), PV is $250,000 (the current value of the house), PMT is 0 (the house's appreciation doesn't have an annual payment or income related to it). Solving for FV, I find that after 10 years, my rental house will be worth $447,711.92.
d) Paying 10% in commissions means that I receive 90% of my house's value.90% x $447,711.92 is $402,940.73.
e) I still owe $115,619.58. After I pay off that loan, I get to keep $402,940.73- $115,619.58 = $287,321.15.
f) If I took that$287,321.15and paid down my $275,309.25 remaining balance, I'd have that mortgage completely paid off and have$287,321.15 -$275,309.25 = $12,011.90 left over.
If you recall from last week, you'll realize that during that 10 years, I was also receiving$431.36 per month in rental income. If I'd stuck that money under my mattress (i.e. did nothing with it other than accumulate it), I'd have a stash of $431.36 x 120 = $51,763.20. And that's on top of having my home paid off with 12 grand to spare. Not bad!
That's it for this week, I hope you enjoyed it! I'm not sure what we'll discuss next week, but at this point I'm thinking... notes?Probably. Notes can be pretty awesome.
See you next time!
