Under Contract...now what

[Chelsey McMasters]

We're really excited, we're under contract for our first door in San Antonio!!  We didn't make an all cash offer for this rental property so now we're debating whether we should funnel money at the principle to pay off the property as fast as possible or is it actually better to just deal with the interest since we'll have a renter paying that for us and funnel the cash into a second door instead?  

Thank you for any insight and lessons learned.

[Polo Vazquez]

It depends. Having a mortgage is always more risky, but if you buy more properties you can use the cash flow of the other properties to pay off your first property even faster! Also, you would have 4 o 5 five properties going up in value every year vs 1. For a fourplex in San Antonio, that's the difference between having 4 fourplexes valued at 2 million dollars or just one at 500k. You would gain, 80k in equity versus only 20k (at 4% appreciation).

The way I see it, if you are older and worried about retirement, then just pay it off as quick as possible and get rid of the risk. If you are young or have money to take the risk then take advantage of the power of leverage.

Regards