Author Topic: Investigating Strategies  (Read 2615 times)

MJ

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Investigating Strategies
« on: June 29, 2013, 03:03:39 PM »
Hi. New member here. Been reading MMM for a couple of months and just got the wife on board. Here's our dilemma.

We currently save about $2500 per month after all bills paid (this includes wife and I working as well as rental profit from 4 rental houses). Currently sitting on $50,000 ready for investment SOMEWHERE.

Home mortgage balance $230k at 4.25%
Rental 1 mortgage balance $50,048 at   6.250% and provides $3,013 annual profit
Rental 2 mortgage balance $44,907 at   4.625% and provides $5,982 annual profit
Rental 3 mortgage balance $67,641 at   5.250% and provides  $6,602 annual profit
Rental 4 mortgage balance $74,905 at   4.000% and provides $5,917 annual profit


Option 1: We could throw extra money at home mortgage and pay it off in 5 years or so

Option 2: We could throw extra money at each rental until paid off to increase cash flow.

Option 3: We could purchase another rental to increase cash flow. It would likely provide $5k - $6k per year.

Option 4: We could begin putting money into Vanguard index fund.

I can't decide what's the best return for my mone/best way to get us retired ASAP.

Any help or advice from the experts around here are welcome!

lhamo

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Re: Investigating Strategies
« Reply #1 on: June 29, 2013, 03:12:11 PM »
Doesn't seem to make  sense to plow it into your home mortgage, as that is one of your lower rates.  Have you looked into refinancing that one?  4.25% seems a bit high in the current market.

I would pay off the mortgage on Rental 1 and increase your profits on that one, since it is the highest interest rate and what you have on hand will just pay it off. 

Do you have an emergency fund?  And how are you doing on retirement savings?  You aren't saving that much of your income on top of the rentals (only about $700/month by my calculations), so if you aren't in good shape with those issues I would pay them some attention.  Your debt load is a bit high for my comfort zone, but YMMV.

Would also help to know what your long-term plans are.  Are you going to continue to expand your real estate investments and live off the income from those once you leave paid employment?  or cash out? 

MJ

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Re: Investigating Strategies
« Reply #2 on: June 29, 2013, 03:29:29 PM »
Thanks for replying, lhamo.

-We've got a $50k emergency fund.
-We've got $150k or so in 401(k)s
-The rentals are our retirement plan. In 30 years, they'll all be paid for and provide a nice income. Now I'm antsy and don't want to wait to retire. I never intend to sell a rental.
-We'll refi the high interest rental if we don't pay if off.

Will consider refi on home loan, too. Unless we just pay it off in 5 years.

gooki

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Re: Investigating Strategies
« Reply #3 on: June 29, 2013, 03:46:14 PM »
My advice, assuming there is no PMI on any of the mortgages, and they each have the same tax advantages.

First pay off Rental 1. Then refinance the mortgage on your home. Saving 1% on a 230k mortgage provides a gain of $2,300 a year. Use the extra cash flow to pay of rental 3.

aj_yooper

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Re: Investigating Strategies
« Reply #4 on: June 29, 2013, 05:08:19 PM »
This is a naive question as I don't have any rental properties.  But...  If you are actively managing your rentals, can you do a SEP and put cash there?

lhamo

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Re: Investigating Strategies
« Reply #5 on: June 29, 2013, 10:23:16 PM »
Just curious -- what are the monthly payments on each of your properties?  Kind of wondering what a debt snowball would look like. 

And, if you don't mind sharing, what are your monthly living expenses?  Again, it would be interesting to calculate how quickly you could be living off your rental income.

happy

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Re: Investigating Strategies
« Reply #6 on: June 30, 2013, 02:06:12 AM »
Llamo, I was thinking the same thing :)

nktokyo

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Re: Investigating Strategies
« Reply #7 on: June 30, 2013, 04:58:40 AM »
I would pay off the $50K mortgage on the rental with the highest interest owing. 6.x% is a good return on your spare cash and from experience it feels totally badass when you start owning rentals freehold.

MJ

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Re: Investigating Strategies
« Reply #8 on: June 30, 2013, 11:58:49 AM »
Thanks everybody...

I know nothing about SEPs. Guess I need to do some research on that. We do manage the properties ourselves.

Let me see if I can attach something...