Investor · West Bend, WI · Member since 2014 · 214 posts · 149 votes
So I am sitting down to iron out my business plan. Spending time on BP it seems that many people who have 15,20,50 houses hold mortgages on most of them.
My wife and I are conservative by nature so the thought of 15-20 mortgages is scary to us. My thought was that in year three when I should have 4-5 duplexes to pay one off prior to moving on then acquire a few more properties then again pay off a mortgage or two. As a 32 year old am I ever going to be able to reach 20-30 properties doing this? The market I will be investing in the properties are only 40-60k for duplexes. With monthly rent per property of $1100-1200 and taxes on average of $1200.
Input is appreciated.
Jeff
@Jeff G. The biggest reason to carry a mortgage on any (and every?) property is to put your capital to work at higher returns. Paid in equity sitting in a property does not generate a return. It's like sticking money in a no interest savings account. A second reason is risk mitigation. Although having too high LTV on a property puts you at risk of going underwater in a downturn, carrying a reasonable mortgage can make you less attractive for lawsuits. Free and clear properties are more attractive targets (not only for litigation-happy folks but also - heaven forbid - for divorcing spouses).
Consider your risk tolerance, of course, but consider using leverage on all your investment properties - even if you need to eventually keep your LTV around 60% or 50% so you can sleep better at night.