I wanted to get the board's opinion on a couple different strategies for paying off my rental properties sooner than 30 years and see if there was one strategy that made more sense that the other. Each of these strategies assumes I have ample reserves for vacancy, repairs, and other problems on hand and that I do not require the cash flow generated for any other purposes. At the moment I have 2 properties with the goal to add an average of 1 per year. My philosophy is that I fund my real estate purchases through my own savings and then treat the properties as a stand-alone investment that should not require additional capital outside of what each property produces. I also do not want to take money out of the "business" as I want each branch of my investment strategy to stand on it's own.
Strategy A - Treat each property as it's own business
In this strategy I would apply the excess monthly cash flow from each property to it's respective mortgage. This allows the better performing properties to pay for themselves quicker and also provides additional equity in the event I needed to sell for an unexpected reason. This also allows for "hiccups" so if a property goes from over-performing to under-performing due to economy, neighborhood deterioration etc each property would stand on its own and not have all my equity tied into a property on the downward swing.
Strategy B - Treat all properties as a giant business
In this strategy I would apply the excess monthly cash flow from all properties to one mortgage at a time with the goal of paying them off as quickly as possible. This allows me to have a smaller number of mortgages outstanding and reduces my risk as a borrower. I would order the mortgages based on interest rate, current balance, projected income, etc. However, with this strategy there is the potential that the property I place all my cash flow in becomes undesirable (trashed by tenants, and issues from Strategy A) and all my eggs are in one basket instead of spread evenly.
if you are an investor working to pay down mortgages which do you prefer and why?