Make large payment on perty to cashout or invest in new property.

7 Replies

Hello people. 

I gave 20,000 for a downpayment on a 92,000 single family home its now worth about 105,000 I now owe 69,000 property cash flows 150 a month, how ever tenant paid one year of rent up front which is 15, 000 adding it with my savings equals (30,000) I have an other property that can cover this house payments. Now should I dump it to the principal payment of the house to reduce amount owed  and do a cash out refi ? or should I leave that alone and invest that money in new property? I would like to read your opinions.

@Eric Guerra I would not dump all that extra money + your savings into that property. It wouldn't make any sense to do that. Assuming you have a fixed mortgage, it wouldn't even lower your monthly payment. All it would do is trap that money in the property, and/or force you to pay interest to borrow it and get it back out.

Plus, and this is probably the bigger risk, what if the tenant decided to move out before the year was up? In reality, you're just borrowing that advance rent payment until it's earned. If the tenant were to suddenly move out (even if there's a lease that they're breaking), in almost every state you'd be required to mitigate your damages, re-rent the property to another tenant, and return any unused/unearned rent. How would you do that if you had already sunk it all into the property?

Jaysen; Thank you very much for your opinion.

My original Idea is that if I owe 69,000 and I pay down 30,000  that leaves the mortgage at 39000. Increasing cash flow a bit once I refinance, and at the same time since the property is worth about 105,000. I have 20,000  plus 30,000 pluss some equity that the property gained when i fixed it. Would be 1 or may be 2 downpayments on cheaper properties  rather than using 30,000 on 1 new property.  (I guess if I pay the property as soon as posible I could use it as a piggi bank to keep puling the equity out and keep growing the portfolio.) But again its just a crazzy idea Im still green at this. 

Kyle thanks to you as well  for your opinion.

You have brought up a great point about if the tenant leaves I would have to reinburse that money to tenant. I guess in the event this would happen I would have to pay out of pocket and it wouldn't feel good. 

What would you do to move foward ? 

I don’t think it makes sense to pay down extra principle , unless you have a enough to pay off the loan and receive the benefit of the extra monthly cash flow. I would either continue to save until you had that amount OR more likely invest that money in a down payment on another property and start to SCALE. That is where you will see exponential growth!

@Eric Guerra

I would absolutely not spend your tenants money. I’d have it in an account and take out the rent every month. If they leave early and you owe them money and you spent it, big troubles..