Author Topic: When to pay off mortagae on SFH rentals?  (Read 1107 times)

zoltani

  • Guest
When to pay off mortagae on SFH rentals?
« on: January 06, 2017, 04:09:46 PM »
I currently have 2 rental properties, looking to buy a 3rd. One is completely paid off and the other has a loan balance of around 49k. It is financed at 4.625%, and I was thinking of funneling all the rental income into the mortgage to pay it off aggressively. Is this a smart thing to do at 4.625%? The idea would be to buy a 3rd property soon and add that income to the payoff. When the 2nd house is paid then start attacking the 3rd, which will likely be financed around the same interest rate. I have a hard time deciding if this is a good strategy or if I am better off saving the rental income for more properties.

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 1942
  • Age: 40
  • Location: Pueblo, CO
Re: When to pay off mortagae on SFH rentals?
« Reply #1 on: January 07, 2017, 03:01:13 PM »
If you are looking to acquire a 3rd property, it doesn't make sense to me to pay off the mortgage on rental house #2. If you are done and want to FIRE, then I think it makes more sense to pay off the mortgage on rental house #2.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28234
  • Age: -999
  • Location: Seattle, WA
Re: When to pay off mortagae on SFH rentals?
« Reply #2 on: January 26, 2017, 04:50:06 PM »
Quote
When to pay off mortgage on SFH rentals?

With today's rates?  After 30 years.  Unless you get a chance to refi and extend them at low rates, then longer.

:)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, 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.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5145
Re: When to pay off mortagae on SFH rentals?
« Reply #3 on: January 26, 2017, 06:12:38 PM »
If you are asking this question, you may not be generating a decent yield on the property.  What is your cash on cash return and what would be the capitalization rate (net operating income divided by the all in free and clear cost or current value)?  If the free and clear cap rate is less than you mortgage rate, you are negatively leveraged.  In this situation, selling might be a better option.