My rental property rate goes variable in 2009 so should I just let the house go?

Here’s the question before I answer:

“In 2009 my rental property interest rate will become variable and I’ll honestly dont think I’ll be able to afford it. I owe $197,000 on the loan. I had a recent homes sold report for the area high $159,900 and low $109,495. Once the rate goes variable should I just let the house go? What do I do?”

My answer:

I won’t lecture on the apparent mismatch in loan products on an investment property. By definition a rental home is a long term hold
therefore it requires a fixed rate loan program…but that ship has sailed.

You neglected to give the details on the rental income and the type of adjustable rate you’ll be looking at in 2009, so my advice will have to be general in nature. If you choose to give those details I can sharpen my advice (use comment section below…if you desire).

Rental property or any real estate gets a lot of it’s value from being a hedge against inflation. With gas headed for $5 a gallon, food prices up 20%…and the Fed not concerned in the least with the fall of the dollar, runaway inflation is already somewhat “baked into the cake”.

This means right about the time you let your house go it will start to rise in value…and possibly in 5 years it’s worth $300,000…and climbing.

If I were you I’d do everything in my power to save it. Buy down the mortgage if you must to refinance it into a fixed rate mortgage and hold for the long haul.

That is key…you need a fixed rate to benefit from rising inflation as a landlord. Fixed debt service but ever increasing rents is the goal.

As Warren Buffet once said, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

I agree here with Buffet. Everyone hates real estate right now…they are afraid of it. Don’t be. Hang on…you’ll be glad you did.

Good Luck!