Author Topic: Pay off mortgage on a rental??  (Read 8872 times)

myamnesia

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Pay off mortgage on a rental??
« on: January 27, 2016, 11:49:59 AM »
Hi,

I'm new to MMM and am looking for some advice...we're aiming to be FI in 10 years, our accommodation is currently provided by our employer so our own living expenses are minimal. We own a rental property close by that we manage ourselves. Does it make sense to pay off the mortgage over the next 10 years or wait until we're FI and pay off in one go or not pay off at all? We're thinking that the rental income would pay for our accommodation when we're traveling in 10 years if we're mortgage free. We're also saving like crazy ($4000 per month) and investing everything in the stock market. We're also looking at buying another rental property as well. Any ideas or thoughts would be much appreciated, we're trying to figure out the best plan whilst we have time on our side.

Thanks!!

GrowingTheGreen

  • Bristles
  • ***
  • Posts: 356
    • Growing The Green
Re: Pay off mortgage on a rental??
« Reply #1 on: January 27, 2016, 12:33:22 PM »
From a percentage standpoint, your investment return is higher if you don't pay off your mortgage at an accelerated rate.

Normally, I'd say let it run its course and invest the difference. In your case though, having the extra cash flow each month could make paying off the mortgage an attractive option. It basically comes down to one question: would you rather have more cash flow in retirement come from the stock market or in real estate? If your answer is real estate, then I favor purchasing another rental.

PARedbeard

  • Stubble
  • **
  • Posts: 152
  • Location: Pennsylvania
Re: Pay off mortgage on a rental??
« Reply #2 on: January 27, 2016, 12:37:07 PM »
Are there any tax considerations when thinking about this? I have heard rumors in the past, and would love to know more.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Pay off mortgage on a rental??
« Reply #3 on: January 27, 2016, 01:46:26 PM »
Are there any tax considerations when thinking about this? I have heard rumors in the past, and would love to know more.
Well, aside from your interest deduction going down, there's this: the same money could be invested in another rental, adding to your depreciation basis.

I currently have two rentals and a 1/3 share of two more. This year, the total will double at a minimum and possibly triple, by taking advantage of all available financing. All free cash goes into down payments, with no extra paydowns. But once we have the portfolio we want, we start drawing that debt down to maximize cash flow ahead of FIRE.

Put simply, max leverage (minimum equity) is usually best for growth. Deleveraging (building equity) reduces total return, but is good for stability and risk reduction once you have the income you want.

andyp2010

  • 5 O'Clock Shadow
  • *
  • Posts: 93
  • Location: NZ
Re: Pay off mortgage on a rental??
« Reply #4 on: January 27, 2016, 02:05:14 PM »
I know this one very well. I have fire'd but still have over $1m in property debt and reconsider these things from time to time. From my perspective I'd be putting it on your mortgage and not in the stock market. Reason being is that it's a risk free proposition and that's whats required when you're looking at retiring, a steady income.

If the bank turn around and say 'your house isn't as valuable, you'll have to top up your loan' and all your cash is in the stock market, then you'll have to pull a chunk out of the stock market when it's likely at a low ebb. This is why I'm not putting a penny into shares until my mortgages are gone (14 years to go!)

Personally I like the extra guaranteed cashflow too.

People say about the tax benefits of keeping a large mortgage but you'd also get a really small tax bill if you didn't charge your tenants any rent,see how that goes for you! It tends to be used as an excuse for wanting to spend the profits on living rather than good money skills.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Pay off mortgage on a rental??
« Reply #5 on: January 27, 2016, 02:10:24 PM »
But they're still 10 years from FIRE. Total return is more important than risk at this stage. My $.02

myamnesia

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Pay off mortgage on a rental??
« Reply #6 on: January 27, 2016, 03:21:38 PM »
Sounds good, thanks for your comments. My feeling is to keep stashing our money in the stock market and pay off our current mortgage when we FIRE. That way we'll have an alternative revenue stream to the stock market to live off. We really want another rental property, it's just so expensive in California, we need a $100,000 deposit for a $500,000 house, the rent will pay the mortgage and taxes so it should break even, but compared to 5 years ago we bought our current rental for $345,000. We have the deposit ready and waiting, but it's a hard pill to swallow!

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Pay off mortgage on a rental??
« Reply #7 on: January 28, 2016, 09:26:20 AM »
Sounds good, thanks for your comments. My feeling is to keep stashing our money in the stock market and pay off our current mortgage when we FIRE. That way we'll have an alternative revenue stream to the stock market to live off. We really want another rental property, it's just so expensive in California, we need a $100,000 deposit for a $500,000 house, the rent will pay the mortgage and taxes so it should break even, but compared to 5 years ago we bought our current rental for $345,000. We have the deposit ready and waiting, but it's a hard pill to swallow!
Dude, that's a shit rental. Find some trusted partners and invest out of state. A lot of people here do it.

I don't, but I'm just a lucky asshole swimming in bargains in the Southeast.

GrowingTheGreen

  • Bristles
  • ***
  • Posts: 356
    • Growing The Green
Re: Pay off mortgage on a rental??
« Reply #8 on: January 28, 2016, 12:49:04 PM »
Sounds good, thanks for your comments. My feeling is to keep stashing our money in the stock market and pay off our current mortgage when we FIRE. That way we'll have an alternative revenue stream to the stock market to live off. We really want another rental property, it's just so expensive in California, we need a $100,000 deposit for a $500,000 house, the rent will pay the mortgage and taxes so it should break even, but compared to 5 years ago we bought our current rental for $345,000. We have the deposit ready and waiting, but it's a hard pill to swallow!

Eesh. Not a good investment. Breaking even is bad. You should check out Bigger Pockets and the 50/2 rule. It's an ideal case, but if you're not even close, then it's a poor investment.

marty998

  • Walrus Stache
  • *******
  • Posts: 6309
  • Location: Sydney, Oz
Re: Pay off mortgage on a rental??
« Reply #9 on: January 28, 2016, 01:06:29 PM »
Sounds good, thanks for your comments. My feeling is to keep stashing our money in the stock market and pay off our current mortgage when we FIRE. That way we'll have an alternative revenue stream to the stock market to live off. We really want another rental property, it's just so expensive in California, we need a $100,000 deposit for a $500,000 house, the rent will pay the mortgage and taxes so it should break even, but compared to 5 years ago we bought our current rental for $345,000. We have the deposit ready and waiting, but it's a hard pill to swallow!

Eesh. Not a good investment. Breaking even is bad. You should check out Bigger Pockets and the 50/2 rule. It's an ideal case, but if you're not even close, then it's a poor investment.

We'd had this discussion before.

All property markets are different. In many parts of the world you just are not going to get your unicorn 50/2 rule.

You'll be waiting for the next millennium to find a 50/2 rule Property in Sydney for example.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Pay off mortgage on a rental??
« Reply #10 on: January 28, 2016, 02:01:48 PM »
Eesh. Not a good investment. Breaking even is bad. You should check out Bigger Pockets and the 50/2 rule. It's an ideal case, but if you're not even close, then it's a poor investment.

We'd had this discussion before.

All property markets are different. In many parts of the world you just are not going to get your unicorn 50/2 rule.

You'll be waiting for the next millennium to find a 50/2 rule Property in Sydney for example.
Did you see the part in bold?

The "2" isn't a hard set thing... you can destroy typical stock market returns at 1.25-1.5%, as long as the 50% holds and you get reasonably cheap credit. It's below "1" that the dynamics really change. Debt service and costs start to exceed rents there, and cashflow-negative rentals (which this really is, after maintenance and other nasty surprises) are a fundamentally different investment from the ones large investors look for.

What OP describes is probably more like 0.6-0.7%, which, if he wants to speculate on appreciation, might be his bag. But if he just wants to lock in some stable cash flow for retirement, he has better options. That is a shit-ton of capital to tie up in one play, just hoping its value rises.

But, like I said above, others have found great success by investing cross-country. It's absolutely what I'd do with the majority of my savings if I picked up and moved to his town today. It does take some work, but I gather it's worth it.

Just an example: I recently looked at a block of duplexes from $70K to $90K rented for $500+ each side. Owner fi, 15% down at 4%. I'm not biting cause there are better deals in town. These are double-digit cap rates even with 100% paid management, maintenance, and all. I wouldn't have to live here to buy something like this. It's 100% turnkey, rented, under management. OP could go to any number of towns, many of them less distant, and find similar deals.

myamnesia

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Pay off mortgage on a rental??
« Reply #11 on: January 28, 2016, 04:29:03 PM »
Thanks for the advice, my eyes have been opened to out of state investing, I didn't realize it was an option for us!! Thank you:)

MaikoTsumi

  • 5 O'Clock Shadow
  • *
  • Posts: 97
Re: Pay off mortgage on a rental??
« Reply #12 on: January 29, 2016, 08:26:28 AM »
Sounds good, thanks for your comments. My feeling is to keep stashing our money in the stock market and pay off our current mortgage when we FIRE. That way we'll have an alternative revenue stream to the stock market to live off. We really want another rental property, it's just so expensive in California, we need a $100,000 deposit for a $500,000 house, the rent will pay the mortgage and taxes so it should break even, but compared to 5 years ago we bought our current rental for $345,000. We have the deposit ready and waiting, but it's a hard pill to swallow!
Dude, that's a shit rental. Find some trusted partners and invest out of state. A lot of people here do it.

I don't, but I'm just a lucky asshole swimming in bargains in the Southeast.

Hey zephyr,
      I see your in the same area as me.  I have to agree, the South has some good deals.  Are you in Huntsville?  What do you think about the 10 year projection on Huntsville area surpassing Birmingham for largest city in the state?

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Pay off mortgage on a rental??
« Reply #13 on: January 29, 2016, 08:43:39 AM »
Hey zephyr,
      I see your in the same area as me.  I have to agree, the South has some good deals.  Are you in Huntsville?  What do you think about the 10 year projection on Huntsville area surpassing Birmingham for largest city in the state?

I live in Madison but work and invest in Huntsville, and I'll tell you what I think. This county is shit-hot and I've never felt so lucky in my fucking life.

I'm negotiating a package deal for three (3) well-worn rentals this year from one seller in West Huntsville, total down payments about $20K. This deal alone should eventually produce enough cash flow to fund our retirement. Not that I'm stopping there. This year is time to run the score up. By '17 I'll be coasting toward FIRE.

GrowingTheGreen

  • Bristles
  • ***
  • Posts: 356
    • Growing The Green
Re: Pay off mortgage on a rental??
« Reply #14 on: January 29, 2016, 10:59:01 AM »
Hey zephyr,
      I see your in the same area as me.  I have to agree, the South has some good deals.  Are you in Huntsville?  What do you think about the 10 year projection on Huntsville area surpassing Birmingham for largest city in the state?

I live in Madison but work and invest in Huntsville, and I'll tell you what I think. This county is shit-hot and I've never felt so lucky in my fucking life.

I'm negotiating a package deal for three (3) well-worn rentals this year from one seller in West Huntsville, total down payments about $20K. This deal alone should eventually produce enough cash flow to fund our retirement. Not that I'm stopping there. This year is time to run the score up. By '17 I'll be coasting toward FIRE.

Ok I've got to have made a mistake here. 3925 Highridge Dr, Hunstville. Asking $117900. If I use a $12/sqft value for rent which seems to be on the low end for the area, I'd be renting this puppy for $860/unit. Using a 20% down, even being more conservative than the 50% rule, it would still cash flow $15k a year. That's being insanely conservative. Is this right?! Am I high?

MaikoTsumi

  • 5 O'Clock Shadow
  • *
  • Posts: 97
Re: Pay off mortgage on a rental??
« Reply #15 on: January 29, 2016, 01:10:18 PM »
Hey zephyr,
      I see your in the same area as me.  I have to agree, the South has some good deals.  Are you in Huntsville?  What do you think about the 10 year projection on Huntsville area surpassing Birmingham for largest city in the state?

I live in Madison but work and invest in Huntsville, and I'll tell you what I think. This county is shit-hot and I've never felt so lucky in my fucking life.

I'm negotiating a package deal for three (3) well-worn rentals this year from one seller in West Huntsville, total down payments about $20K. This deal alone should eventually produce enough cash flow to fund our retirement. Not that I'm stopping there. This year is time to run the score up. By '17 I'll be coasting toward FIRE.

Ok I've got to have made a mistake here. 3925 Highridge Dr, Hunstville. Asking $117900. If I use a $12/sqft value for rent which seems to be on the low end for the area, I'd be renting this puppy for $860/unit. Using a 20% down, even being more conservative than the 50% rule, it would still cash flow $15k a year. That's being insanely conservative. Is this right?! Am I high?

       You're looking at $400-$500 for that area.  Lot's of turnover, 1 month lease's and first month's free common. 

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Pay off mortgage on a rental??
« Reply #16 on: January 29, 2016, 01:22:35 PM »
Ok I've got to have made a mistake here. 3925 Highridge Dr, Hunstville. Asking $117900. If I use a $12/sqft value for rent which seems to be on the low end for the area, I'd be renting this puppy for $860/unit. Using a 20% down, even being more conservative than the 50% rule, it would still cash flow $15k a year. That's being insanely conservative. Is this right?! Am I high?
You're looking at $400-$500 for that area.  Lot's of turnover, 1 month lease's and first month's free common.
I dunno, you might see $600. I've actually looked at that listing. I don't remember if I saw the rent numbers, but I mentally put it on the back burner for whatever reason.

Tomorrow I'm looking at a duplex around $100K that supposedly will get $750 a side. Have a PM company doing market analysis to validate that, since it's been vacant undergoing reno and has no rental records. If it pans out, that'll probably be our next buy.

MaikoTsumi

  • 5 O'Clock Shadow
  • *
  • Posts: 97
Re: Pay off mortgage on a rental??
« Reply #17 on: January 29, 2016, 01:46:45 PM »
Possibly, but there's a lot of competition for the lower end and the reported cap rate suggests the lower end.  25% vacancy reported as well.

GrowingTheGreen

  • Bristles
  • ***
  • Posts: 356
    • Growing The Green
Re: Pay off mortgage on a rental??
« Reply #18 on: January 29, 2016, 02:14:49 PM »
Ok I've got to have made a mistake here. 3925 Highridge Dr, Hunstville. Asking $117900. If I use a $12/sqft value for rent which seems to be on the low end for the area, I'd be renting this puppy for $860/unit. Using a 20% down, even being more conservative than the 50% rule, it would still cash flow $15k a year. That's being insanely conservative. Is this right?! Am I high?
You're looking at $400-$500 for that area.  Lot's of turnover, 1 month lease's and first month's free common.
I dunno, you might see $600. I've actually looked at that listing. I don't remember if I saw the rent numbers, but I mentally put it on the back burner for whatever reason.

Tomorrow I'm looking at a duplex around $100K that supposedly will get $750 a side. Have a PM company doing market analysis to validate that, since it's been vacant undergoing reno and has no rental records. If it pans out, that'll probably be our next buy.

Man... That's a pretty legit CoC return.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Pay off mortgage on a rental??
« Reply #19 on: February 01, 2016, 11:01:05 AM »
Man... That's a pretty legit CoC return.
Yeah, I'm pretty hot for it.
We offered $95K plus some closing concessions yesterday, but there's a second offer in today.
Listing agent is poker-faced. Mulling options for a revised offer.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Pay off mortgage on a rental??
« Reply #20 on: February 02, 2016, 01:14:29 PM »
Man... That's a pretty legit CoC return.
FACK!

They got a full price offer ($99,900) and didn't even give us a chance to top it. Oh well, on to the next thing.

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: Pay off mortgage on a rental??
« Reply #21 on: February 08, 2016, 06:39:09 AM »
I know this one very well. I have fire'd but still have over $1m in property debt and reconsider these things from time to time. From my perspective I'd be putting it on your mortgage and not in the stock market. Reason being is that it's a risk free proposition and that's whats required when you're looking at retiring, a steady income.

If the bank turn around and say 'your house isn't as valuable, you'll have to top up your loan' and all your cash is in the stock market, then you'll have to pull a chunk out of the stock market when it's likely at a low ebb. This is why I'm not putting a penny into shares until my mortgages are gone (14 years to go!)

Personally I like the extra guaranteed cashflow too.

People say about the tax benefits of keeping a large mortgage but you'd also get a really small tax bill if you didn't charge your tenants any rent,see how that goes for you! It tends to be used as an excuse for wanting to spend the profits on living rather than good money skills.

...and how is this reducing risk when you put all you extra money into paying off mortgages and they are foreclosed 2 years before being paid off?

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: Pay off mortgage on a rental??
« Reply #22 on: February 08, 2016, 01:12:28 PM »
Sounds good, thanks for your comments. My feeling is to keep stashing our money in the stock market and pay off our current mortgage when we FIRE. That way we'll have an alternative revenue stream to the stock market to live off. We really want another rental property, it's just so expensive in California, we need a $100,000 deposit for a $500,000 house, the rent will pay the mortgage and taxes so it should break even, but compared to 5 years ago we bought our current rental for $345,000. We have the deposit ready and waiting, but it's a hard pill to swallow!
Dude, that's a shit rental. Find some trusted partners and invest out of state. A lot of people here do it.

I don't, but I'm just a lucky asshole swimming in bargains in the Southeast.


It really depends on what your strategy is. If it is to grow money and cash out later, then west coast appreciation may not lend itself to high cash flow, but it does lend itself to appreciation and build net worth faster using leverage. Where you own it's likely that the properties are cheap and remain so because they don't really appreciate. The only real money is the cash flow.

Personally, I only invest for cash flow, and consider the appreciation a bonus. Yes, my cash flow is a little less than say, rural Georgia, but I still cash flow more than stock returns AND I get a nice bonus with appreciation. I'm in the Seattle market.

I have a series of options though, one of them being cashing them out when I retire and relocating to a LCOLA to be a landlord part time. I already have the experience, so letting these properties in Seattle fatten up then 10-31 exchanging to a LCOLA where I can have 10-20 paid off properties and still have a ton of money left over to invest in index funds, I will consider it a win. The cash flow keeps me operating and making money now while I wait for the time where I may do this.
« Last Edit: February 08, 2016, 01:18:55 PM by Bearded Man »

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Pay off mortgage on a rental??
« Reply #23 on: February 08, 2016, 04:13:14 PM »
It really depends on what your strategy is. If it is to grow money and cash out later, then west coast appreciation may not lend itself to high cash flow, but it does lend itself to appreciation and build net worth faster using leverage. Where you own it's likely that the properties are cheap and remain so because they don't really appreciate. The only real money is the cash flow.

Personally, I only invest for cash flow, and consider the appreciation a bonus. Yes, my cash flow is a little less than say, rural Georgia, but I still cash flow more than stock returns AND I get a nice bonus with appreciation. I'm in the Seattle market.

I have a series of options though, one of them being cashing them out when I retire and relocating to a LCOLA to be a landlord part time. I already have the experience, so letting these properties in Seattle fatten up then 10-31 exchanging to a LCOLA where I can have 10-20 paid off properties and still have a ton of money left over to invest in index funds, I will consider it a win. The cash flow keeps me operating and making money now while I wait for the time where I may do this.
I get this little side-eye thing going any time people start talking about appreciation as a predictable linear thing.

Yeah, we have affordable property and high cap rates, but that doesn't mean we won't see appreciation too. My current project is all about investing in areas with potential renewal, where the cash flow is already there but the real icing would be a demographic shift and rise in values. There's huge variation in local trends within my county, and we're diversifying to increase our odds of hitting pockets of growth.

Likewise, HCOL markets have been known to decline and even crash. Sure, appreciation as part of RE investment strategy is legit, but it's much more difficult to predict than future rents.

NoNonsenseLandlord

  • Bristles
  • ***
  • Posts: 396
  • Age: 59
  • Location: Eagan, MN
    • No Nonsense Landlord
Re: Pay off mortgage on a rental??
« Reply #24 on: February 08, 2016, 04:32:22 PM »
I have paid off several mortgages.  With 9 properties, worth ~$2M, I have ~$500K in debt.  They also generate $150K in positive cash flow because they have only a small amount to pay for debt service.

I say pay off the mortgage.  If you are still buying, then buy before you pay it off if you will not have enough for a down payment.  The stock market will be volatile risky for a few years.

It's a risk free return.

Here is some analysis I went through.
http://www.nononsenselandlord.com/2015/08/should-i-pay-off-my-rental-mortgage/

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Pay off mortgage on a rental??
« Reply #25 on: February 11, 2016, 12:50:27 PM »
Concur with the above. The BLUF is, if you want to grow your portfolio, do that first, and then deleverage. If you're happy with what you own, then work on reducing debt service next.

myamnesia

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Pay off mortgage on a rental??
« Reply #26 on: February 11, 2016, 05:16:18 PM »
Thanks for the comments...no nonsense landlord your blog post is very useful. I need to think about this some more. On another note, we've been researching turnkey investing non stop and have decided to ditch the idea of purchasing another California rental and buy out of state instead, if all goes well we'l buy multiple, $100,000 goes a lot further out of CA!!

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Pay off mortgage on a rental??
« Reply #27 on: February 12, 2016, 08:19:24 AM »
Thanks for the comments...no nonsense landlord your blog post is very useful. I need to think about this some more. On another note, we've been researching turnkey investing non stop and have decided to ditch the idea of purchasing another California rental and buy out of state instead, if all goes well we'l buy multiple, $100,000 goes a lot further out of CA!!
Damn straight it does. Case in point, the current package I'm working includes two duplexes for (48k+52K=100K) with a total rent of $1745 (and some units due for increases).
Not exactly turnkey, but close (keeping existing PM, built into sale contract for min. 1yr).

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 1850
  • Age: 40
  • Location: Kauai & Denver
Re: Pay off mortgage on a rental??
« Reply #28 on: February 15, 2016, 10:10:12 AM »
If you are going to retire early it makes sense to me to get rid of the mortgages. This will put you in a really small tax bracket like MMM.

bittheory

  • Stubble
  • **
  • Posts: 131
Re: Pay off mortgage on a rental??
« Reply #29 on: February 15, 2016, 04:14:05 PM »
My "Soft FIRE" plan begins in 15 years. Thus, I've figured out the math/amortization schedule to pay off my rental property in 15 years.

I personally believe that your goals should dictate your decisions. And I agree that if you are going to FIRE by your date, get rid of the mortgage on a pace that fits your timeline.
« Last Edit: February 15, 2016, 04:25:47 PM by bittheory »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27757
  • Age: -999
  • Location: Traveling the World
Re: Pay off mortgage on a rental??
« Reply #30 on: February 15, 2016, 04:44:44 PM »
Concur with the above. The BLUF is, if you want to grow your portfolio, do that first, and then deleverage. If you're happy with what you own, then work on reducing debt service next.

Or, another option (and my preferred one): if you're happy with your real estate portfolio, keep the cheap leverage (assuming fixed, long term, non-callable debt) and diversify to other assets with that money you would be using to pay down the cheap loan.  Especially if your overall portfolio is overweighted in RE.  Paying down the mortgages just keeps you heavily weighted in real estate.  Diversifying by owning other assets will help ride out the cycles.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Pay off mortgage on a rental??
« Reply #31 on: February 16, 2016, 06:52:20 AM »
Or, another option (and my preferred one): if you're happy with your real estate portfolio, keep the cheap leverage (assuming fixed, long term, non-callable debt) and diversify to other assets with that money you would be using to pay down the cheap loan.  Especially if your overall portfolio is overweighted in RE.  Paying down the mortgages just keeps you heavily weighted in real estate.  Diversifying by owning other assets will help ride out the cycles.
Good point.

adamcollin

  • Stubble
  • **
  • Posts: 154
  • Age: 28
  • Location: Texas
Re: Pay off mortgage on a rental??
« Reply #32 on: February 17, 2016, 02:51:40 AM »
 I think paying the mortgage value gradually in 10 years is a better option.

Larabeth

  • Bristles
  • ***
  • Posts: 279
  • Location: Alabama
Re: Pay off mortgage on a rental??
« Reply #33 on: February 17, 2016, 03:37:42 AM »
Yikes, why am I stuck in Birmingham?!?! Hahaha

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Pay off mortgage on a rental??
« Reply #34 on: February 17, 2016, 01:08:24 PM »
Yikes, why am I stuck in Birmingham?!?! Hahaha
Assuming that was directed at me: oddly enough, we nearly bought a 3-plex in Irondale for $99K, $1750/mo. in supposedly decent condition and fully rented, just a few months ago.

Seller was hard to reach and by the time we got her on the phone about a showing, she had (unsurprisingly) just accepted an offer. Agree that those deals are harder to find down there than in NORAL, but the multiples are in overlapping ranges, and staying in the hunt matters more than exact location.

I think paying the mortgage value gradually in 10 years is a better option.
Depends on desired AA. If paying it all off now (or as soon as possible) doesn't make sense, why does prepaying some of it make sense? I would be more likely to cash out another asset before quitting a job to match up the cash flow changes.

Larabeth

  • Bristles
  • ***
  • Posts: 279
  • Location: Alabama
Re: Pay off mortgage on a rental??
« Reply #35 on: February 19, 2016, 09:31:12 PM »
Yikes, why am I stuck in Birmingham?!?! Hahaha
Assuming that was directed at me: oddly enough, we nearly bought a 3-plex in Irondale for $99K, $1750/mo. in supposedly decent condition and fully rented, just a few months ago.

Seller was hard to reach and by the time we got her on the phone about a showing, she had (unsurprisingly) just accepted an offer. Agree that those deals are harder to find down there than in NORAL, but the multiples are in overlapping ranges, and staying in the hunt matters more than exact location.

I think I saw that listing... I'm actually hoping to eventually move back to Florence where I'm from (and have land I'd like to build on!!!), and then I think I could do well renting to college students.  There are several properties close to UNA that I've wished I could rent out.  I know college kids can be a bit more difficult, but I think I would be able to handle it ok.