Mortgage vs Owning outright

[Lawrence Moore]

Just out of curiosity, how many of all your properties do you have a mortgage on and how many do you fully own? 

Mainly talking to buy & hold people, but flipping would also be welcomed, and really any type of REI investors.

Thanks! 

[Jake Hartnett]

@Brandon Ingegneri You could have a very simple business if you just had 10 houses that were all paid off cashflowing $600/month each ($1200/house with 50% expenses). If they were each worth $100,000 you would be getting 7.2% return on equity on your $1,000,000 portfolio, and an annual cashflow of $72,000. Not a bad simple business.

Now if you took that $1,000,000 in equity and spread it across 33 properties with 70% LTV the payment on each one would be about $350, so the cash flow would be $250/house or $99000 annually for a cash on cash return on equity of 9.9%. You are also paying down over $1,150 of principal every year per house, for a total of at least $38,000. So theoretically you can buy another house every year just with the equity build up and increase your net worth by an additional $4150 per year.

The question is, would it be worth it to you to manage 23 more houses for an additional $65,000 per year? Manage 10 paid off houses for $72,000 or manage 33 houses with mortgages for $137,000?

There is no right answer but for me its leverage all the way. Plus, when you own outright you give up the very valuable mortgage interest deduction.