Paying off properties vs. buying more properties

28 Replies

Hi all,

I just purchased my first two properties in KCMO and am looking into more.  I have enough cash to purchase one more conventionally then I have to start getting creative (portfolio loans, private lending, etc).

Do you think it would be more advantageous to put monthly savings towards paying off the principle on the two current properties (could pay them both off in about 4 years with HELOC method which would save me long-term about 45k in interest), or continue to pay the conventional 30 year amortization/interest on those two and focus on acquiring more properties?

I know conventional wisdom says acquire more property, acquire more debt -- but as a "normal" person who uses extra savings left over from my disposable income (read: I'm not wealthy), I'm torn between going full force on reducing debt on the current properties vs. acquiring more debt via other means.  With the interest rates looking like upward movement is imminent, I'm swayed towards acquiring as many loans locked in at today's lower rates as I can max out at -- and then focus on paying them off starting in 1-2 years.


My thoughts are "it depends" on what your goals are. If you have a good job and don't need the cashflow today then I think maximizing your cash on cash return will build the most wealth for you over time. If your goal is to be able to use the cashflow to improve your lifestyle in the near term then I would focus on what will do that the quickest as your initial goal and get to a place where you can be comfortable with the combined income from your job and a portion of the cashflow from real estate. Then be more aggressive on using leverage with the cashflow beyond that level.

Build a strong foundation, then your empire upon that foundation!

Use others money to leverage and buy more properties.

@Dave Blackman , I agree with the previous post but will try to provide some useful help.  First of all, congrats on building your portfolio.  Based on current interest rates and the likeliness that these rates will not remain so low, I think you should continue to build.  IMHO, continue to pay your two properties on the 30 year amortization and keep the other cash flow free.

As for your next property, the problem with another conventional loan, as you know, is the 20-25% you have to put down. How much equity do you have in the two properties you already own? If you have the ability to refinance and pull some equity out, I would consider doing that. Can you get a line of credit against one or both of the properties? Instead of using a HELOC to pay dow your debt, use it to expand your portfolio. If not, is there any other way you could finance the down payment? Maybe private money, family, friends, etc.... that could help you to avoid liquidating all or most of your savings... All of these are options and will help you to get what I believe is the right thing, which is continued expansion.

  I really believe this is the hardest time for an investor.  Continuing to press on after two or three, for a normal person with a normal job is where is starts to get uncomfortable.  Do the research, run your numbers, trust yourself and you will do great.  

If I just purchased my first two properties several states away (turnkey?) I may wait a little bit to see how they do before I rush out to buy more.   Let the dust settle a bit and see how your PM, tenants and assets perform.  

In my expensive little backyard I started paying down some of my older 6%+ mortgages once I built my acquisition account, awaiting an opportunity - some day, maybe.   

As debt-averse as I tend to be, I would have a hard time accelerating down any mortgage rate that starts with a 3.  Too many opportunities to triple that or more reasonably (with assets you can see regularly, anyway). 

Nothing on fire here.  Chew on what you've bitten off already, then get some more if it's working out, I'd say.  Congrats on your success so far @Dave Blackman !

I no longer believe in the "BRRR" strategy.

@Varinder Kumar Care to expound on that? Im interested to hear drawbacks to that strategy


Just answer this question. I own 100 SFRS funded by leveraging each other against each other, or I own 10 free and clear. Which one would you rather have?

If you guys dont see it by now then you will never agree with it.

Unless you are planning on retiring soon the answer for me is always buy more. At this time I have no desire to pay down any principal.

Originally posted by @Varinder Kumar :

I no longer believe in the "BRRR" strategy.

Would you mind elaborating on what led you to dislike the BRRR strategy?

@Varinder Kumar I'm confused by your question, how does disliking the BRRR strategy have anything to do with that? You could leverage properties using BRRR just as well as not using it. Owning 10 properties free and clear just means you either make a lot of money at your current, non-REI job, or you chose to pay down mortgages instead leveraging properties, or both. Either way, I think we're all wondering what you mean by comparing apples and oranges.

@Dave Blackman , there's no right or wrong answer.
Just the answer that works for you, your needs, your life, your finances at any given time, and your comfort level with debt.

John Sanders 

At what age do you plan on retiring, considering your REI portfolio?

Matt Hoyt 

Brother Matt, how much cash flow a month do you need to live a the type of life you want? 

John "Sanderson" excuse my spelling on the last post.

At what age do you plan on retiring, considering your REIportfolio?

I am always a fan of saving disposable income until you have enough to put down over 50% on a new property... 

All -- thanks so much for the insight, opinions and support -- and for confirming the direction I was considering.  Let the dust settle a bit, continue to save and wait for the right deal to come along, and be prepared to jump. All the best to all of you!

The whole argument hinges on what your goals are and how you want to accomplish them.

I was completely in the camp of leverage to the max and buy as many properties as possible...with the goal of getting to 20+ units.

I got to 10 mortgages (9 props, 10 doors) and then realized this process was violating my "passive" investing goal as an out of state investor (living in California with a full time job).

I realized time > money in some aspects and managing 10 doors was getting be a pain with some properties not performing as expected.

I just sold my first 1 out 9 and in escrow to sell another one.    My plan is to sell off at least 4 out 9 properties in the 12 month time and therefore trimming my portfolio to 5.


#1  cash out at peak of the market... buy/hold forever is not a good strategy (at least not for some properties)

#2  cut out the fat (poorly performing properties or properties with very low appreciation potential)

#3  Get cash heavy to invest in other areas and other markets (switching markets, leaving texas and focusing on atlanta).   Also, waiting for possible recession and pick up more discounted properties.

#3 TK providers not quite what I expected...not truly turnkey (poor prop management, poorly rehabbed, etc..).     Now, I plan to buy on my own - new construction, newer construction, and/or niche marketing for tenants (specialized tenants like grad students) instead of relying on TK providers.  And self manage my own properties from a distance.   That can only be done if you have great properties and great tenants.   I plan to put in the time to accomplish those two goals (good properties, good tenants) and then relax...rather than the other way around with TK providers properties/tenants which is  easy upfront but then you manage your managers, high turnover, etc..

#4  If I'm going to spend time then I want to be productive.   "Passive investing" is promised by these TK providers so you can scale to 20+ properties...but that is not reality.   I want to keep my portfolio at 10 or less properties (but many more doors due to multifamily).     Maybe 5-6 SFRs and 2-4 mulitfamilys.    And I'm not buying anything less than 150K (For SFRs), A- neighborhoods, good schools.   Atlanta is perfect for this kind of properties that still cash flow.


@Dave Blackman This really depends on your cash flow goals, how happy or sad you are with your job and when you want to fully rely on passive income or atleast supplement your income. For example, if you are really unhappy with your job and want to completely replace your income, let's say you need $8k per month and each property fully cashflowing yields $700 per month, you will need to own 11 properties free and clear between now and time you plan to quit your job. If you think that you still want to work but in a different environment where you have lesser stress (e.g. becoming a teacher and earning half of what you currently earn), then you may only need 5 properties above to reach your goal and remaining coming from your fully paid off properties. You can use several methods to pay off your loan faster including equity optimization technique and own these properties free and clear within a defined duration. Much of this also has to do with buying right. If you consistently buy properties with built in equity you could play the equity against each property to fully pay off your properties. So, buying at the right price becomes extremely important. So, it all depends on several factors but the above should provide you some broad guidelines.

"What's the best way to become a millionaire?  Borrow a million dollars and have someone else pay it off."  Is a quote I heard recently.

I think of debt and leverage as two different things.  I consider personal debt money I have to borrow for things I use or consume (my house, car, etc).

Leverage (a type of debt), on the other hand, is used to magnify the return on an investment.  If I don't want this type of debt, I can sell the asset and my life changes not at all.  In real estate, leverage is very accessible and tends to be be very secure over the long term, making it an attractive asset.

It should be everyone's goal to have no personal debt.  But leveraging investments is a different story.

So, like others have said here, it depends on why you are investing in real estate in the first place.  If you are using real estate like a piggy bank to diversify your savings from your paying job.  By all means pay everything off.

But if you are thinking about real estate as a form of wealth creation, leverage is your best friend.  Almost all serious wealth creation involves leverage.  

Like most of us, you are probably somewhere in between.  It would be nice to go to sleep at night knowing there are no bills to pay.  But independent wealth doesn't sound so shabby either.

Whether you like leverage or not depends on how close you are to retirement and how much risk you are willing to take on. Don't forget they can call the loans any time in most cases.

My 3/4 million dollar leveraged properties that have vacancies keep me up. My paid off 150K house that's paid off doesn't make me blink even if there's a vacancy. If I wanted to retire, I'd de-leverage. If I'm still trying to snowball my portfolio, you bet I'm loading up on bigger and better deals with more debt.

@Jack B.  @William Hochstedler @Abdul Azeez

I'm in agreement with all three of you -- it seems when playing the long game, as I am -- the weight is on leveraging wisely, letting tenants carry that load, and expanding your risk profile across as many properties as you can "afford" to meet your cashflow goals.  My initial two properties cashflow (~$175/mo) after all PITA and capex reserves are removed which won't make me rich, but it's building equity a little at a time and they pay for themselves as I expand my portfolio.  With both mortgages at only around 50k, the ratio's are decent and they are fairly low-risk.

With about 50k left in cash and a 35k HELOC available -- it seems that money is best spent expanding my portfolio vs. paying off the two SFH's -- I'd ideally like to grab a duplex or triplex to add some diversity (and hopefully higher cashflow) to the portfolio. Saving up more cash in order to put the downpayment on something like that seems wiser at this juncture (I'm still a good 15 years from "retirement" where I'll focus solely on REI). Adding a few more properties that are successful should open up some HML that will help me really take things to the next level.

Appreciate everyone's thoughts and taking the time to share their advice/experience!

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