Author Topic: WHAT ORDER TO PAY OFF MY RENTAL PROPERTIES?  (Read 2067 times)

rebekka0

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WHAT ORDER TO PAY OFF MY RENTAL PROPERTIES?
« on: April 12, 2016, 08:06:31 AM »
I am looking for a snowball spreadsheet to help determine in what order to pay off my rental properties.  I have 8 financed, with varying interest rates, length of term remaining, amount of rent collected, etc.  I am holding these properties long-term, and want to make sure that I am using my money to its best advantage.  Any help is appreciated :)

NoNonsenseLandlord

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Re: WHAT ORDER TO PAY OFF MY RENTAL PROPERTIES?
« Reply #1 on: April 12, 2016, 08:10:50 AM »
Pay the highest interest rate first.  Or pay the lowest principal balance.

You do not increase cash flow, and even make it worse, while you are paying down a mortgage.  Your interest expense is less, and your payment is the same.  Once you commit to paying, do it.  The faster the better.

I started with a $160K @ 5.375% mortgage last August, will be paid off by the end of 2016.  It saves ~$8,500 in annual interest, and $960 in monthly cash flow once paid off.  That's $11,524 more cash in my pocket every year.

v8rx7guy

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Re: WHAT ORDER TO PAY OFF MY RENTAL PROPERTIES?
« Reply #2 on: April 12, 2016, 08:16:11 AM »
If it were me, I would go after the highest interest rate first personally.  I think this is different than the debt snowball mentality where you get emotional momentum paying off the smallest first.  Interest rates can have a huge affect on how much interest you end up paying over the life of the loan, so I think I'd go after those savings by hitting the highest interest first.  If there's a really few really small ones that you want to pick off first, there's certainly nothing wrong with that either just to get them done with.  Another option may be trying to combine some of your loans into one or a couple smaller loans that have more favorable interest rates.  Do you have your properties owned by an LLC as a additional layer of protection?  Refinancing is a good opportunty to do that... just some food for thought.
« Last Edit: April 12, 2016, 08:18:33 AM by v8rx7guy »

rebekka0

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Re: WHAT ORDER TO PAY OFF MY RENTAL PROPERTIES?
« Reply #3 on: April 12, 2016, 08:52:45 AM »
Thank you for the responses!  I am looking more specifically for a spreadsheet that will calculate the math. 

I also thought that paying the highest rate interest would work out best in the long run but found this counter-intuitive.  Just yesterday by switching the order of payoff of 2 of the properties I found that I could save $400 overall...and this was paying the lower interest rate off first.  I think it is too complicated to do without a spreadsheet running the numbers due to how many factors are involved.


v8rx7guy

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Re: WHAT ORDER TO PAY OFF MY RENTAL PROPERTIES?
« Reply #4 on: April 12, 2016, 09:12:50 AM »
This is my favorite online calculator for figuring out loan payoffs, principle, interest, etc.  It's set up for existing loans which is very conveinint:

http://loan.bizcalcs.com/Calculator.asp?Calc=Existing-Loan-Payoff

Don't miss the "show ammortization" check box to see each payment...

clarkfan1979

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Re: WHAT ORDER TO PAY OFF MY RENTAL PROPERTIES?
« Reply #5 on: April 14, 2016, 04:50:04 PM »
Highest Rate or Lowest Principal depending on your goals.

marty998

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Re: WHAT ORDER TO PAY OFF MY RENTAL PROPERTIES?
« Reply #6 on: April 14, 2016, 05:36:52 PM »
I will come back here in 2019 when 2 of my loans revert to principle and interest.

All up, 3 props, 5 loans, million bucks of debt. May have a bit more by the time crunch time comes. Yikes.

Oh well have a few years to figure it all out.

SwordGuy

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Re: WHAT ORDER TO PAY OFF MY RENTAL PROPERTIES?
« Reply #7 on: April 14, 2016, 06:14:41 PM »
Mathematically, paying the highest interest rate first will pay off the houses fastest.

There are three reasonable reasons for paying off the lowest balance first:

1) Simplify your life by having fewer bills to deal with, etc.
2) Improve cash flow because you have fewer bills you HAVE to pay in a given month.
3) The emotional component of seeing smaller loans paid off fairly quickly will motivate you to do this, and you aren't likely to keep doing it without that emotional reward.

Whenever I've calculated out which would be better, given the debts I had, the overall $ difference between the two methods just wasn't that long and neither was the time difference to full payoff.   Naturally, that could be different for you based on your specific loans and their terms.   

Given that it didn't make that big a difference for me, I went with pay off the smaller stuff first.