The Road to FISE: To Refinance or Not? Downtown East Village Condo.
August 11, 2020
by drplasticpicker
I have a downtown condo. It’s super nice. It’s a 2 bedroom 2 bath single floor condo, that overlooks the trolley line in East Village. The street it overlooks is lined with mature trees with broad leaves that filter the afternoon sun. When you stand on the balcony of this condo, you can easily imagine yourself in Paris or some European city. It’s near a major ballpark (Mr. Plastic Picker is a huge baseball fan), and comes with 2-underground garage parking spaces. Most condos in the area now only have 1-parking spot. When I bought this condo, I knew that parking in downtown was becoming a premium.
From this condo you can walk to the Central Library, major ballpark, Convention Center, the East Village campus of UCSD, where you can pick up a shuttle that runs to the main La Jolla campus. The two bedrooms are well proportioned and the two baths are very nice size. The kitchen is tucked in the corner, but open to the living area and nicely designed. Did I tell you I love this condo?
When I bought this condo, I was doing a 1031 Property Exchange. I had quite a bit of equity in the previous condo so it ended up being half the purchase price. Therefore my mortgage is very low and I got at that point a decent 30-year fixed rate at 4.38%. The HOA fee is relatively low for downtown because the building does not have amenities. Right now the going rate to rent a similar unit is probably 2600? Right now I rent it to a beloved person at cost and I make just equity. When he gets married, I’m going to start making a lot of money off that condo because I will actually be able to have someone in it that pays me market rate.
| 2 Beds | 1148-1150 Sq Ft | $2,169 (lowest range) | $3,853 (typical) |
But I really enjoy that condo, because I have a room in it and I stop by my room anytime I want. I come by unannounced and I make myself at home. I’ll ask my family member how he is doing, and then rummage through all his cabinets and see what he has been eating. He keeps his condo really really clean. I get to imagine myself as a millenial living in downtown, living the life that he is living. I take a nap in my room and the kids play board games with said family member. Water is included in the condo fee, and I installed a new washer and dryer top of the line a few years ago. I have thought about bringing out laundry over to do it there since water is included, but I haven’t gotten that far! LOL. To say that this condo provides me never ending joy and amusement is an understatement. I love this condo and the person who currently resides in it. I always have it as plan B for retirement in case Mr. Plastic Picker and I need to downsize. We’ll probably stay in our primary home because we also made smart refinancing moves over the years, have a super low 30-year fixed mortgage, and have done enough upgrades that the cost of living in our primary home is actually not that expensive. But it’s funny, I love that condo more than my primary home which is triple the square footage and near the beach.
But the question this morning is if I should refinance that condo or not? I have sent the information to two mortgage brokers to see what rates are available. It’s always smart to shop around for rates. Personal Finance is not that difficult. I just go to bankrate.com and use one of the many personal finance calculators, and there is a Mortgage Refinance Calculator that you type your numbers in and see if a refinance makes sense. That is it.
2.75% 15-Year-Fixed versus 4.38% 30-Year-Fixed with 25 Years Left on Loan
| 4.38% 30-Y-Fixed (25Y Left) | 2.5% 15-Y-Fixed | Delta | |
| Mortgage Payment (Principle & Interest) | $1250 | $1560 | +285 |
| Equity Gain | $410 | $1033 | +646 |
| Interest | $840 | $525 | -315 |
| Paid Off By | 2045 | 2035 | -10Y |
| Monthly Carrying Cost | $1250 ($1005) | $1535 ($1391) | +285 |
| Net Worth Gain* | $410 | $1033 | $623 |
New Loan, What Do I Make in Equity?
Amortization Schedule on 2.75% 15-Y-Fixed
| Payment Date | Payment | Principal | Interest | Total Interest | Balance |
|---|---|---|---|---|---|
| Sep 2020 | $1,560.83 | $1,033.75 | $527.08 | $527.08 | $228,966.25 |
| Oct 2020 | $1,560.83 | $1,036.12 | $524.71 | $1,051.80 | $227,930.14 |
| Nov 2020 | $1,560.83 | $1,038.49 | $522.34 | $1,574.14 | $226,891.65 |
| Dec 2020 | $1,560.83 | $1,040.87 | $519.96 | $2,094.10 | $225,850.78 |
| Jan 2021 | $1,560.83 | $1,043.26 | $517.57 | $2,611.67 | $224,807.52 |
| Feb 2021 | $1,560.83 | $1,045.65 | $515.18 | $3,126.86 | $223,761.88 |
| Mar 2021 | $1,560.83 | $1,048.04 | $512.79 | $3,639.64 | $222,713.84 |
In the end, if we do this refinance it will cost Mr. Plastic Picker and I an extra $285 a month in the carrying cost, but we will gain an additional $623 in equity a month. So I will still gain $338 more in networth a month which is $4056 a year. More importantly this loan will be paid out 10 years earlier. I expect to be able to rent this unit at market rate within the next few years after the current occupant/technically my roommate moves onto another stage in his life. I have written earlier about my intense emotional attachement to this unit and we have always planned to hold it as a long-term investment.
I am still waiting for the second mortgage broker to return with more rates, and I have a feeling she can get me a better deal. But if I was presented with just this scenario knowing our specific life circumstances surrounding this condo, I would go ahead and refinance.
I hope you enjoyed hanging out with me this morning as I go through this mental exercise. Financial independence and peace of mind is so important. As I tell my friends who I serve as their spiritual personal financial advisor, personal finance is at it’s essence very personal. My real estate shenanigans is advanced MD FIRE 101. For most of my readership, do the basics first. Live within your means and increase your savings rate. You have to save money and have a 3-6 months financial cushion, before you can start debating about refinancing rental properties. Step by step. Babysteps first and you will get there too. Dr. Plastic Picker is so FISE, but it took us 15 years to get to where we are today. And this is why I turned down another offer from an MD-run website that wanted to monetize this blog! It’s been super annoying. What is wrong with people? I’m just writing for fun about random things. That MD-run website, they need to go get jobs. Oh, right? They probably have jobs as doctors already. Super annoying. They should go pick up some trash.
