Hey everyone!! I’m new here and new to investing. This is actually my first post!
So here is my question. I have listened to over 300 of the podcasts, I've read dozens of books, and gone to a few meet ups. I haven't heard of anyone talk about paying down a mortgage early. I assume it is because the math dictates that there is a better option for using my 200-300$ cash flow for something else. Now after saving for CapEx, vacancies, emergencies etc, what's wrong with me taking that $300 and paying my mortgage down? All I keep thinking about is taking a 30yr mortgage down to a 15yr and saving a ton on interest. Or getting it down so low that I can use a heloc to pay it off early and just make the heloc payments. Then when I am 100% paid off I can borrow against that property for other investments.
Is there something that I am missing?
Thanks in advance!
Hey @Ted Felsberg It all really depends on your goals. Some people would rather own their properties free and clear which is totally fine.
You can take the snowball approach like you are talking about and use excess cashflow to pay down debt.
Besides the obvious advantages of keeping properties leveraged, I think the only thing you are missing here is once you pay extra principal, that $$ becomes illiquid until you either refinance or sell.
There are always pros/cons to every method you just need to choose what's best for you
If your goal is to get the greatest long-term return on a single investment, then paying down may be the way to go. If, however, you are looking to scale by having additional, cash-flowing investments, you may decide that you can achieve a greater return by purchasing another property now, as opposed to paying off the existing property then expanding. As @Jake Stuttgen stated, this is very much dependent on your personal comfort level with leverage and your unique goals.
What are your goals? How many rentals do you have? If you don't want to buy any more rentals, then pay down the debt; but also think about what the interest rate is on your mortgage and if you can make more money by investing it elsewhere. Why pay down a mortgage with a 3% interest rate more quickly, if you can invest that money and get 5% interest?
If you have positive cash flow, your tenant is the one that's paying off your mortgage. Why are you helping them?
Thanks everybody! Great answers. I guess I have to figure out my goals before going that route. Thank you for the knowledge.