Paying off properties vs. buying more properties

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Paying off properties vs. buying more properties

Dave Blackman
Flipper/Rehabber · Santa Barbara, CA · Member since 2015 · 67 posts · 25 votes

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.

Thoughts?

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Kevin Hunter
Rental Property Investor · Carlisle, PA · Member since 2013 · 1k+ posts · 543 votes
9y

@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.  

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  • Varinder KumarPro Member
    Real Estate Broker · LA & ORANGE COUNTY CA -Multi Family · Member since 2016 · 374 posts · 132 votes
    9y

    @Matt H. 

    I believe people dont ask them self enough as to why they are doing what they are. The motive behind their actions is generally influenced by what society is doing. I believe that a lot of people purchase the best of the best when they dont need it, their really paying for a short period of happiness before they start to regret the purchase, and thats not how one should make their financial decisions. If you buy something because your heart desires it then you should enjoy it to the fullest without ever thinking about the cost of financial part of it. example: I like corvettes. But I want top of the line etc but what I am really paying for is a "giggle". A giggle that i can get with a used $25k corvette also. 

    So with real estate. People are leveraging HELOC's etc to fund additional properties when their really not going to see a return until 20-30 years of it being paid off. I think its a mental thing to where they believe they have to have to have multiple properties to make them selves feel as if they accomplished something. Any way I dont want to start a coaching session on life etc. But hopefully you get where i am coming from. Trust me i used to be that guy who was willing to leverage against multiple properties to buy more. At the end of the day to each is own.

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  • Matt H.
    Real Estate Broker · CA · Member since 2016 · 243 posts · 226 votes
    9y
    Varinder Kumar sorry I guess I misunderstood the question. I thought you were asking me what my numbers were to get a gauge for yourself or others. I know exactly what I need/want per month I just don't think think it is helpful to other people because of my situation. I do believe in buying more property, as much as you can, and I see a return on my investments immediately. For 15 years every financial decision has been calculated to the best of my ability. And only recently have I bought a house and second house that are more than I need and perhaps not the best financial decision. But I can afford them both, realize what they are and love them no regrets.
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  • Varinder KumarPro Member
    Real Estate Broker · LA & ORANGE COUNTY CA -Multi Family · Member since 2016 · 374 posts · 132 votes
    9y

    @mat 

    Cool man! Enjoy

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