Keep in mind that not everyone's goals are the same.
Personally, I'm looking to retire once I have 1MM in liabilities.
One path that I may likely take is to NEVER pay off a mortgage, eventually acquire over 20 of them, and refi them to longer terms to take cash out when they get paid down.
Mathematically it's far, far superior to paying them off.
Not everyone is anti-debt.
Interesting strategy - any place you can point me to that discusses this and shows the math?
Thanks!!!
grantmeaname nailed it.
And actually someone just PM'd me the same question this morning. The following is what I sent to them as a reply.
Hah! That's a good question.
Having mortgages is indeed mathematically superior, and if you want to actually get rich you'll want to use leverage like that - basically every non-lotto winner successful businessman does. I don't care about getting rich, but I do care about hitting FI as fast as possible.
The advantage comes from a combination of three things:
1) Leverage - discussed in this MMM post here:
http://www.mrmoneymustache.com/2012/02/24/pay-down-the-mortgage-or-invest-more-a-winwin-question/Specifically read "Strategy 2" in that article. I'm the one who wrote the post he quotes. Essentially leverage (i.e. having a mortgage) will let you earn more money in a variety of ways (more tax advantages via depreciation, more cash flow, more principal paydown - obviously, and more appreciation if any happens, mortgage interest writeoff, etc.). It's mathematically much better.
2) Inflation protection - as the dollar is worth less, such that more dollars are being printed, your fixed mortgage becomes smaller and smaller as a percent of your spending. So let's say your mortgage payment is $1000. Bread is $2, gas is $5. Now inflation hits, stuff doubles in price over a few years. Bread is $4, gas is $10, and your mortgage is... still $1000. Effectively it costs you HALF as much in real dollars due to inflation. (And rents will go up, meaning if you rent your payment is higher, but not if you own a mortgage, and if you rent it out to someone, you'll make more, but not have to pay more.) Having no mortgage, you aren't saving anything in your budget. But the mortgage helps protect you from inflation.
3) TAX FREE gains. As I outlined in this thread:
https://forum.mrmoneymustache.com/investor-alley/get-rich-with-a-mortgage!/You can continually refinance to gain the market value . This further protects you from inflation (because the refi amount rises with inflation), but just as important, the amount you pull out from refinancing isn't income. So you don't get taxed on it! If you just have one house, you'd only refinance every 24 years or so (once it's doubled in value). Now imagine you have 24 houses, such that you can refi one per year. That's 100k (in the example below, or whatever the nominal value of the house is) per year, tax free.
My post in that thread, to help explain a little more, said:
Sure, I think that could be a great idea. For me, it likely won't matter, because I'm planning on refinanacing every so often (even at *gasp* higher future rates) in order to tap equity. With home prices growing to (roughly) equal inflation, your 100k home, at 3% inflation per year, will be worth roughly 326,000 in 40 years. That's money sitting I'd rather have access to.
Though your strategy might be good for if you are just having your one (primary) residence.
Refinancing works especially well with rentals. Refinancing gets you money out TAX FREE.
Here's an amazing strategy. Say you have 24 rentals worth 100k each. Rule of 72, 3% inflation means they double in value every 24 years. You do a mortgage ladder where one is 30 years from paying off, the other 29, the next 28, etc. and so on down. Each year, you refi the one that is closest to paying off to max out the term. You gain all the untapped equity. The next year, you refinance the next one, and so on, each year, until you get back to the first one. 24 years later. By that time, it's approximately doubled in price. You refi to take out 100k (in 2011 dollars) tax free. The next year, house #2, which has doubled since you last refi'd it, you tap 100k in today's dollars.
Every single year your refinance gets you what the house is worth, in today's dollars, completely tax free.
As long as the rent covers the mortgage (and since rents rise with inflation, if you bought it right and kept it up, it should), you are gaining the value of one of the houses every year into your pocket tax free. Aside from any cash flow the house itself provides.
I'd take 100k/year, inflation adjusted, just for filling out refinancing paperwork once/year.
...but that's a separate side tactic.
So those are some reasons why mortgages are superior to free and clear. Sure, being debt free (including "owning" your house - though it can get taken by an HOA, government via eminent domain, not paying taxes, etc.) gives you a warm, squishy feeling. But it sure won't make you as much money. So me? I'll load up on debt, as long as I'm comfortable with the ability to repay. Because frankly I'd rather pay a little interest and let the bank earn some money if it will make me even more money!
Hope that helps/makes sense.