Author Topic: Paying off my mortgage on rental properties  (Read 1284 times)

Duro999

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Paying off my mortgage on rental properties
« on: March 03, 2015, 05:51:48 AM »
Hi all - I have had a question on my head for a while and was wondering if through the magic of compound knowledge I would be able to get my answer.

I am gearing up to "retiring", meaning quitting my 9-5, since I believe I am already FI... and only 31 years old.

However, I know my next few decisions could be critical to my long term future and was wondering if you could help.

My situation is as follows:

Net worth: $2.2M

Liquid: $150K in different savings accounts (US, Spain and Dubai)
Non-liquid investments: $$850K in 401ks and taxable Vanguard accounts (90/10 on stocks)
Rental Properties - 5 properties between Florida and New York
  • Value: $1.8M
  • Mortgage debt: $550K
  • 4.5% interest average on the 3 properties I hold a mortgage for: About $5K/month in payments including maintenance/taxes/etc.


Equity: $1.2M

My plan is to quit my job in 18 months, and dedicate full time to writing. Currently, I make about $5K/month writing for a few blogs, so I'd like to continue that and ideally expand to doing a few more freelance gigs.

From the rental properties, I manage to collect about $5K on top of paying for all three mortgages.

My question is: Before I "retire" would it make sense to move some of the investment money to clear one or two of the mortgages? I debate this because, on the one hand, if rent money or freelancing gigs were to die off, I'd rather not have a $5K/month payment over my head (I could cut it down to $1.4K/month if I can pay off all three mortgages).

However, I wonder if, paying no personal income tax (the freelancing goes through an LLC) and with $10K/month in rental income, having no mortgage payments to offset my income, would hurt me a lot come tax time.

Any ideas/thoughts or suggestions will be more than welcomed!

Thanks in advance.


thebeachbum

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Re: Paying off my mortgage on rental properties
« Reply #1 on: March 03, 2015, 08:40:37 AM »
Its really all about your personal risk tolerance.

Yes paying them all off now may cost you a little more in taxes, as well as your investments will probably parallel or exceed your interest rate that you are paying on the mortgages.

However if you pay off your mortgages, then you will be buying "freedom" less risk, or more flexibility, however you want to look at it. your income from writing, or vacancies on your properties have less of an impact on your cash flow.

If you are really torn there are some middle of the road options, such as paying off just 1 or 2 properties, Or possibly refinancing all your properties to lower the payments and therefore increase your cash flow.

Hope that helps just a few of my thoughts. Also congrats on being 31 with such a portfolio.

Dividend Youngster

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Re: Paying off my mortgage on rental properties
« Reply #2 on: March 03, 2015, 03:54:33 PM »
In rentals cash flow is king.... im still accumulating properties and in my case its makes more sense to put the cash flow towards another cash generating property but once "retirement" becomes an option I think I would like my properties paid off before hand... if they stay rented your cash flow will be huge and even if you carry a higher vacancy rate it wont hurt at much because you arnt carrying the mortgage.
My two cents

Thanks!