Should I pay off an investment property?

Question

My husband passed away tragically 7 weeks ago and I now have insurance money to pay off our investment condo that we owe $115k at 4.1% interest (733 a month) We have a tenant in there and it pays for itself but I’m wondering if I should pay it off and then use that income to pay my current mortgage at $950 a month? Any advice is greatly appreciated.

Erik Estrada · Answer

It really depends on your goal. If you are happy with two properties and do not want to stress about property management and tenants, pay off the investment property. If your goal is to scale your rental portfolio, having a mortgage is one of the fastest ways to do it. Either way, you are in a win-win situation.

Mitch Messer · Answer

@T. White My condolences on your loss.

If I understand your situation, your investment condo currently generates cash flow. So, you don't need to use your insurance proceeds on it.

My question then is this: Why would you?

If your goal is to minimize your personal mortgage, why not focus your efforts specifically there? Is the interest rate as low as you can get it? Can you make principal payments and accelerate your paydown? Are you paying private mortgage insurance (PMI) that could be eliminated by getting your loan balance down?

I would look at the residence and the investment property completely separately.

Moreover, although it's breaking even, the investment property may or may not be a great deal. Depending on the kind of return you're getting on it, you may determine that there are far better ways for you to earn a quality return!

I recommend you run some numbers with an experienced financial professional who can help you explore some scenarios.

Here's the thing, though: Please make sure whoever you find has deep experience with real estate investing, and is a a true advisor, not an insurance or securities salesperson!

You'll want to get some solid references here.

Good luck!

Charlie MacPherson · Answer

Please allow me to second @Theresa Harris recommendation. You need time to absorb and cope with a loss of this magnitude. In times of grief, decision making can be badly impaired, so if it's possible, try putting the decision off for several months or more.

There is no schedule for grief. We all process it differently, so if you feel ready sooner, go for it. But don't be afraid to take extra time if your head isn't really clear.

I'm very sorry for your loss and will pray for God's healing comfort for you.

Alex Breshears · Answer

Good morning Ms. White. First, I am sorry for your loss. That is a really big blow to anyone, and the fact you are able to come up and ask these questions shows a ton of personal strength. I am also located in Hampton roads, so let me know if I can ever help you out. I do private lending, so I use the capital I have access to and lend that out to other active investors. That provides me with cash flow without dealing with a tenant, or even another property that would have repairs and maintenance associated with it. If cash flow is your goal, I would say this is a great way to get monthly income coming in!

Theresa Harris · Answer

I am sorry for your loss. If you don't need to make a decision now, I would wait a few more months before making any major financial decisions. Without your husband's income (assuming he was working), you may find it harder to get loads should you want to buy other properties.

Aaron Porter · Answer

I agree with a lot of the comments on here... take you time, don't let anyone talk you into anything that doesn't align with your long term goals. If something is a good deal today it will be there tomorrow and if it isn't something else equally as good will come up soon.

As far as what to do with the insurance payout, find a professional that you trust and has your best interest in mind. Be open and honest with them about your short term and long term goals, have them help you run through multiple scenarios and then if none of those scenarios still don't feel right get a second, third or fourth opinion.

Drew Sygit · Answer

@T. White the real investment question is, where can you get the best rate of return on the money with corresponding acceptable risk?

Option #1 - pay off a loan costing you 4.1% (less after interest writeoff).

Optin #2 - invest the money elsewhere earning more than 4.1% (with acceptable risk)

Only you can pick an option #2 that you are comfortable with.

Steve Vaughan · Answer

That 4.1% tax deductible rate is tough to beat.

We paid off our primary, then put a fat heloc on it as an opportunity fund. Interest on our primary hasn't been deductible in years.

Either way, reducing debt is never dumb. You have my condolences.

Mitch Larrivee · Answer

Everyone in here is dropping great advice. I agree that it depends on your situation. If it were me, I'd be thinking about using that $ to buy 2 or 3 condos and replicate the existing cash flow you have. You'll never regret having equity in the long term.

Robin Simon · Answer

Agreed with above - you should run the numbers on the different options but that is a great interest rate on a cash-flowing property, as long as its not a hassle, it likely makes financial sense to keep it considering the current market

Should I pay off an investment property?

Should I pay off an investment property?

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