When To Stop Buying And Start Paying It Off?

18 Replies

I'm 38 and own a small business and 18 units.  I am at a crossroads as to what to do.  When all 18 are paid off it will bring in 90-110k(after 20% off the top for main,vacancy,etc...)      

I can live off of that. 

My question is do I start paying them off as fast as I can now and maybe start buying again when I have them paid off if I feel like it......or

keep buying more now and then sell half of them(estimate) in 10 years to pay off the remainder of the mortgages on the 18 units?

This is keeping me up at night

Any suggestions would be greatly appreciated.

Thank You

J

               

Let your tenants pay the mortgages.  Why use todays rent to pay 2035 mortgage payments?  He's 2015 money to make 2015 investments.

Bob,

I hear what your saying.  i didnt put this in my post.......I am trying to get out of my small business at some point in the near future.  does that change your answer at all?

It depends on what the market is like in your area. Are homes still undervalued and you can get good deals? I'm all for riding the market till it drops. That being said there are some people who hoard money like other people hoard personal items. I consider both a disease. If you'd rather be free to travel and can comfortably live off what you make then you might consider selling your business and paying off the mortgages and go travel while you're young enough to enjoy it. You know what they say "don't postpone joy".
Justin Santonocito how much do your 18 units bring in now yearly net?
(585) 678-6857

@Justin S.

Rates are to low to stop buying.  Unless you are not comfortable with acquiring more rentals I would keep on buying and that 90-110K will easily turn into $200K. 

Ellie- I like what you say about not postponing joy.  this decision does not have to be the best financial decision.  it will most likely be 50/50 financial/emotional

Eddie-It nets about 40k annually

Rocky- That's the part that im afraid of.  Im afraid to stop buying.  what if 100k isn't enough?

Originally posted by @Justin S. :

Bob,

I hear what your saying.  i didnt put this in my post.......I am trying to get out of my small business at some point in the near future.  does that change your answer at all?

 NOPE!  Even if you just throw the extra money in the mattress it is available to you at no cost.  Mortgage payments are fixed and rents should be going up.  If you stick that money in the property it won't affect the rents or the appreciation on the property.  All it will do is give you back YOUR OWN money in low monthly installments.  If you want a lump sum you will have to PAY the bank to get some of your money out!  OR you could just take the money you need out of the mattress for FREE in a lump sum or installments.  You are in charge!  Plus the bank will devalue your cash flow by debt to income, forcing a 25% vacancy on it.  Bastids!

There will houses to buy when these are paid off. There will be mortgages available to fund those houses. Both the houses and the mortgages will be priced differently than they are in 2015, but so were they differently priced in 2010, 2005, 2000, 1995, 1990, and so on..... If you want to buy again in the future, you'll have enough experience to buy wisely and make money, just as successful REIs have in every single market. What keeps you up at night is generally "risk." And risk isn't mitigated by following the too-typical BP mantra of equity stripping, using every dollar of cash flow to reinvest in RE, and buying houses like they are going out of style. None of us are going to know your internal risk tolerance. Find a path that has you sleeping well at night, and stick to it for a year. Then ask yourself this same question again. Good luck.

I personally find a lot of peace paying things off and a lot of serenity not chasing the highest return on every dollar.  Did that for years and it's tiresome!  Funny, when I think I'm just coasting along and done buying new properties, new distressed owner situations pop up. I weigh them all individually but am never going to a bank to do anything but make deposits again.  I still have the 'buy bug' and am afraid I'll never lose it, but it is soooo nice having equity and not looking under rocks for the next deal anymore!  Pay 'em off @Justin S. !

Hi, Great question... I had same question. As interest rate is low it is better to keep buying more... Is it good idea to pull equity out from current portfolio and invest more ?

Bob thank you, what you say does makes sense.

Dan,

That is some of the best advice I have received.  Thank You

be careful trying to get too comfortable.  This is business.  It's good to keep a little pressure on...it keeps you from getting lethargic, lazy, and sloppy.  Remember, the easy path is seldom the smart path.  

So if you paid off your mortgage, would the remaining expenses such as property taxes, insurance, and maintenance fees "keep you up at night" instead?

The point I am trying to make is that there will always be risk and there will always be expenses that you could potentially worry about paying, regardless of whether or not the property has a mortgage.

I am not sure I understand your question. 

1st - You are currently paying off your debt on the 18 rentals.

2nd - the question is wether you find money to buy new stuff. That is different money.

Or do you resist the urge or pass on great deals. You current rentals will not pay off any faster either way. 

I have a lot of my rentals paid for, and a lot that are not. If a deal comes up and I think it will fit, I find new money to buy with. 

Wether I stop now and buy no more, or not, all my current loans will pay off within  5-10 years. If I buy more then the new money will be paid for later. 

I also find the thrill is in the deal, not necessarily collecting the rent. 

Rick and arlan

My main reason to want to pay them off is too be done "working" and sell my small business 

As for the risk of the taxes and insurance. .....to me that's not risk(subjective of course)

Thank you so much for the continued responses, it's helping me think through this decision 

Rick and arlan

My main reason to want to pay them off is too be done "working" and se

As for the risk of the taxes and insurance. .....to me that's not risk(subjective of course)

Thank you so much for the continued responses, it's helping me think through this decision 

@Arlan Potter You are right, the thrill is in the deal.  I would venture to guess there aren't a lot of BP family here that doesn't like to ride roller coasters.

Karen,

I love the deal too, love it!  I'm getting a little burned out with my small business and thought if I could pay these off sooner I could scale back on my business or even sell.  once I am all paid off I would probably start buying again but leaving those 18 units free and clear to live off of.  

I would love to hear from anyone who has paid off there portfolio early strictly for peace of mind and an early "retirement"?  

P.S. I will never fully retire, I would die of boredom

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.