Pay off properties or leverage and buy more?

[Account Closed]

What is everyone's consensus on paying off rental properties vs leveraging to aquire more? I understand from an appreciation standpoint it definitely makes more sense to be leveraged, I also understand that my return on equity will probably be abysmally low if it's sitting in a paid off rental. 

However from a risk standpoint, would it be a good idea to maybe have one paid off for every 3 I have leveraged? I'm worried that if I buy at the top I'll be over-leveraged and not be able to absorb a drop in the market. 

Please give me your thoughts, thank you. 

[Corby Goade]

Great questions. If you are buying and holding, what difference does it make if there is a drop in the market, it's always going to go back up eventually, right? I have friends that think what I do is crazy and they always ask me that same question- what do you do if the RE prices drop? My answer is always the same; "not worry about it, because someone else is paying the mortgage." As a buy and hold guy, the only reason the value of my property would matter to me is if I were trying to pull cash out to purchase another property.

In my area, I've never seen rent decreases. They've been stagnant for a few years here and there, but never dropped.

That said, I think your idea of paying off one for every three is a pretty reasonable goal and you should have a good equity position.

Best of luck!