Strategy 73 of 107 · new for the five-year plan
Sell a rental property and pay off the home
What it is
If you own a rental, compare its yearly return after costs with the mortgage rate.
Steps
- If you own a rental, compare its yearly return after costs with the mortgage rate.
- Sell it and pay principal with the after-tax proceeds; then ask for a recast.
- Or sell one of several rentals each year as part of a five-year plan.
Repeat: Once per property.
Measure: After-tax sale proceeds.
Try it in the calculator Enter its amount in "One-time amount to principal". Add a payoff goal of 5 years to see what is still needed.
Risks
- Gains are taxed, and depreciation taken is taxed at up to 25%.
- You give up the rent and future growth.
Who it fits
Higher net worth, with assets, Business owners, Married couples, Grandmas and grandpas (62 and over), Higher earners
Needs
Owns a rental property
How predictable
Depends on markets or variable rates
A worked example (hypothetical, not guaranteed)
Picture a hypothetical household (higher net worth, with assets). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.
They follow the steps: if you own a rental, compare its yearly return after costs with the mortgage rate.
Suppose it brings a one-time $100,000 on principal. The loan would be paid off in 13 years 1 month instead of 30 years, saving about $285,309 in interest. To finish in five years, they would still need about $2,017 a month more from other strategies. That is why the five-year sequences stack several at once.
The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.
Sequences that use it
- Five-year sprint: sell what is not the home: Large one-time sales carry most of a five-year payoff. Pay the tax first, send the rest to principal, then recast.
Sources and more information
Where to get help
Related strategies
- 72. Live-in improve and sell, every two years, tax-free gain each time
- 74. Sell all or part of a business
- 71. Sell in a high-cost area and buy for cash somewhere less expensive
- 75. Sell vested employer shares you already own
- 76. Surrender a policy you no longer need, for its surrender value
- 77. Sell some future structured settlement payments, only with court approval