I want more rental properties but wife want a SFH ?

37 Replies

Hello, BP.

Me and my wife currently have 2 properties free and clear.

1 Townhouse and a duplex. We live in the townhouse and currently renting the duplex. 

Personally, I want to refi both properties and take the cash and buy a multi family property. Live in 1 unit and rent out the others.

My wife want to refi both properties and take the cash to buy our primary residence so it could be free and clear. In that space she says ill have my 2 rental properties and she'll have the free and clear primary home she always wanted.

My argument is "but what about scaling up to get more properties to offset out monthly expenses ??" Financial freedom. 

Ultimately, I want my rental property buisness leveraged through the bank and my primary residence free and clear. This lifestyle idea is great for me and what how I would like to live.

With all this being said. I think it would be fair for both of us if we decided to refi both properties and take the cash out. Use the cash to purchase a our primary residence, that way ill have my family in a home. But take out a HELOC on the primary residence incase a rental property deal pops up I am able to purchase it cash, then refi to use the to pay off the HELOC. In this case, we're able to scale up and also have the free and clear home as my wife want.

Is this fair and I am explaining this right ? am I missing something ?

If you really think about the financial part of it, it makes sense to have a mortgage on your own home. Owning your home free & clear sounds like a good safe plan, until you realize that in order to be free & clear, you have to put that much money to it, so you'll have a lower payment but will have less cash on your hands. That is less safe to me than having no mortgage payment. 

Originally posted by @Soh Tanaka :

If you really think about the financial part of it, it makes sense to have a mortgage on your own home. Owning your home free & clear sounds like a good safe plan, until you realize that in order to be free & clear, you have to put that much money to it, so you'll have a lower payment but will have less cash on your hands. That is less safe to me than having no mortgage payment. 

 That's understandable but what if you have to cash to do so.

@Soh Toni’s
You’re missing three problems with your idea. 1st over 99% of foreclosures are with people that have mortgages.
Second when your mortgage is paid off you can take that amount that you were paying mortgage payments on and save it and you’ll have a ton of cash coming in each month.
Third you don’t pay any interest to the bank.

Personally with my situation I do a little bit of each I keep a lot of equity in my properties but I also use some of that equity to buy other investment properties Due to appreciation and putting 25% down payments. My cash flow was also good and allows me to save up for other investment properties and emergency fund. Plus both my wife and I work full-time and we live in a modest home which allows us to save cash by weekly and invest in Roth IRAs.

Originally posted by @Marcus Johnson :

@Soh Toni’s
You’re missing three problems with your idea. 1st over 99% of foreclosures are with people that have mortgages.
Second when your mortgage is paid off you can take that amount that you were paying mortgage payments on and save it and you’ll have a ton of cash coming in each month.
Third you don’t pay any interest to the bank.

Personally with my situation I do a little bit of each I keep a lot of equity in my properties but I also use some of that equity to buy other investment properties Due to appreciation and putting 25% down payments. My cash flow was also good and allows me to save up for other investment properties and emergency fund. Plus both my wife and I work full-time and we live in a modest home which allows us to save cash by weekly and invest in Roth IRAs.

Do you have a HELOC on your properties to allow you to pull the cash out ?

Cash out refi commercial loan 15 year with small bank. 4.25% rate. Pulled out 48 k. I’m putting this together with other money I’ve saved up and plan on putting 20 to 25% down in either a 2 plex or 4 plex.

Originally posted by @Marcus Johnson :

Cash out refi commercial loan 15 year with small bank. 4.25% rate. Pulled out 48 k. I’m putting this together with other money I’ve saved up and plan on putting 20 to 25% down in either a 2 plex or 4 plex.

Thank you. Make sense. Good luck moving forward 

@Isiah Ferguson  Sounds like a classic debate of Dave Ramsey vs Robert Kiyosaki. Your wife is following Dave with the paid-off mortgage and you’re in the Kiyosaki camp where good debt is a friend. The forums could go all day debating who is right. What really matters is which is best for your situation. Have you tried to get your wife to look at the benefits of leverage and your house isn’t an asset viewpoint?  Bottom line, happy wife, happy life.  Good luck!

The mortgage or no mortgage on a primary home question is debated constantly and the truth is: there IS not right answer. Just the right for you answer.

Why does your wife want a free and clear house? It’s important to understand her reason — her true, deep down reason — in order to make the best decision for both of you together.

I used to focus on paying off my home mortgage early because my family’s money situation was not totally stable when I was growing up, and then my dad lost his house after the last crash. I felt like paying off my home early was smart because I’d always be safe.

It was a Ric Edelman book that changed my perspective.. it was The Truth About Money or Ordinary People, Extraordinary Wealth, but basically it addresses the fear behind carrying a mortgage, and how it goes back generations to what was happening in the Great Depression era. Reading it made me address my belief and determine if it was based on logic and reasoning or on fear of uncertainty.

In order to decide what you two will do together, it’s important to understand the reasoning. After stripping it down to its core, you two should be able to come up with something mutually agreeable and beneficial.

You two BOTH feeling good about what you decide is more important than whether it’s “wrong” or “right” to pay off your home.

@Isiah Ferguson Three thoughts on this:

1.) Debt on a personal residence is going to be at a lower interest rate. So if you have debt there’s some element of “interest rate arbitrage” you can do.

2.) If you pay off your primary residence then you lessen spousal objections to whatever the *next* investment is. You check off the “free and clear” box and that issue never comes up again.

3.) Don’t go against the wishes of your spouse. Interest rate arbitrage ain’t worth it :)

Happy wife is a happy life :) go with the wife discussion until she changes her mind.

Lol this exactly what it is. Dave vs Robert. But I am all for Primary being free and clear and buisness leveraged.


Originally posted by @Tommy F. :

@Isiah Ferguson Sounds like a classic debate of Dave Ramsey vs Robert Kiyosaki. Your wife is following Dave with the paid-off mortgage and you’re in the Kiyosaki camp where good debt is a friend. The forums could go all day debating who is right. What really matters is which is best for your situation. Have you tried to get your wife to look at the benefits of leverage and your house isn’t an asset viewpoint?  Bottom line, happy wife, happy life.  Good luck!

Originally posted by @Raquel Doheny :

The mortgage or no mortgage on a primary home question is debated constantly and the truth is: there IS not right answer. Just the right for you answer.

Why does your wife want a free and clear house? It’s important to understand her reason — her true, deep down reason — in order to make the best decision for both of you together.

I used to focus on paying off my home mortgage early because my family’s money situation was not totally stable when I was growing up, and then my dad lost his house after the last crash. I felt like paying off my home early was smart because I’d always be safe.

It was a Ric Edelman book that changed my perspective.. it was The Truth About Money or Ordinary People, Extraordinary Wealth, but basically it addresses the fear behind carrying a mortgage, and how it goes back generations to what was happening in the Great Depression era. Reading it made me address my belief and determine if it was based on logic and reasoning or on fear of uncertainty.

In order to decide what you two will do together, it’s important to understand the reasoning. After stripping it down to its core, you two should be able to come up with something mutually agreeable and beneficial.

You two BOTH feeling good about what you decide is more important than whether it’s “wrong” or “right” to pay off your home.

 It's definitely about a certain mindset and  having the information. She not on BP day and night like am. I will have too figure out and do both. I do want my primary free and clear and rentals leverage. So I'll continue to take on the great headaches to figure this out lmao. Thanks 

Originally posted by @Andrew Johnson :

Isiah Ferguson Three thoughts on this:

1.) Debt on a personal residence is going to be at a lower interest rate. So if you have debt there’s some element of “interest rate arbitrage” you can do.

2.) If you pay off your primary residence then you lessen spousal objections to whatever the *next* investment is. You check off the “free and clear” box and that issue never comes up again.

3.) Don’t go against the wishes of your spouse. Interest rate arbitrage ain’t worth it :)

 Number 3 is correct !!

My perfect world would be. Primary free and clear and rentals properties leveraged through banks. 

A house you live in is just an expensive doo-dad.  Same as a car, boat, or TV set.  You will here "a home is your biggest investment".  Well, if you're hanging around here, I most certainly hope that's not the case.  Hopefully you will acquire numerous investments in all sorts of assets.  And while you residence might be more valuable than any others (or not), hopefully its a small fraction of your personal net worth.

I've gone back and forth on this.  In earlier days I thought it was OK to have debt on my residence.  These days, I think that's not OK.  If you end up leveraging your residence so that you can invest the money, be sure that you don't put yourself into a position where you would lose your residence if the investments go bad.

You have another choice in your posts.  Live in a residence that meets your needs and requirements for a residence or "house hack" and live in an investment because that allows you to buy with lower down payments.  Lots of folks make the house hacking (or low-speed, every two year fix and flips) work for them.  No way would I do this.  I have one set of criteria for a residence and a different set of criteria for an investment property.  When you mix those two together in one property both sets of criteria get compromised.  

IMHO you should buy the cheapest residence that meets your current and future needs.  Further, you should buy a residence you plan to die in.  Don't fall for the "property ladder" myth.  Sure, lots of people were lucky during the boom and made that work.  The transaction costs are exorbitant.  Its a great deal for all the folks that make money when you buy and sell.  Not so great for your wallet.

first off you should be commended.. all the folks that I have seen over the years weather all sorts of storms be them health, relationship, financial have had massive equity or little or no debt.

most people strive to have no or little debt later in life.. I know I do.

I kind of like the heloc pay cash and BRRR for your rentals.. although do be aware in a down turn heloc's can and do get called.. so its not like having fixed rate financing that is always there.

but if you use them short term refi pay them off.. I like that as a happy medium.

but I simply cannot fault anyone who feels better with a paid off home.  and I think we would be stunned to know how many actually have their homes paid off.. its more than you would think

I wanted to buy a townhouse in Vegas 2 years ago ( well my wife did) we don't owe much on our personal and being self employeed at the time I had too many mortgages so the RMLO is trying to talk me into refinancing all this dead equity I have in my personal resi.. I told him forget it.. not happening I am going the other way I am paying it off.. and just about there.. and I save for 2 years and ended up paying cash for the vegas place.. it all worked out. we move in next month for extended stays and tax treatment.

Originally posted by @Jon Holdman :

A house you live in is just an expensive doo-dad.  Same as a car, boat, or TV set.  You will here "a home is your biggest investment".  Well, if you're hanging around here, I most certainly hope that's not the case.  Hopefully you will acquire numerous investments in all sorts of assets.  And while you residence might be more valuable than any others (or not), hopefully its a small fraction of your personal net worth.

I've gone back and forth on this.  In earlier days I thought it was OK to have debt on my residence.  These days, I think that's not OK.  If you end up leveraging your residence so that you can invest the money, be sure that you don't put yourself into a position where you would lose your residence if the investments go bad.

You have another choice in your posts.  Live in a residence that meets your needs and requirements for a residence or "house hack" and live in an investment because that allows you to buy with lower down payments.  Lots of folks make the house hacking (or low-speed, every two year fix and flips) work for them.  No way would I do this.  I have one set of criteria for a residence and a different set of criteria for an investment property.  When you mix those two together in one property both sets of criteria get compromised.  

IMHO you should buy the cheapest residence that meets your current and future needs.  Further, you should buy a residence you plan to die in.  Don't fall for the "property ladder" myth.  Sure, lots of people were lucky during the boom and made that work.  The transaction costs are exorbitant.  Its a great deal for all the folks that make money when you buy and sell.  Not so great for your wallet.

 Thanks for the response. I will definitely have a safety net reserves for each of my rentals. Atlease that's the plan. 

Originally posted by @Jay Hinrichs :

first off you should be commended.. all the folks that I have seen over the years weather all sorts of storms be them health, relationship, financial have had massive equity or little or no debt.

most people strive to have no or little debt later in life.. I know I do.

I kind of like the heloc pay cash and BRRR for your rentals.. although do be aware in a down turn heloc's can and do get called.. so its not like having fixed rate financing that is always there.

but if you use them short term refi pay them off.. I like that as a happy medium.

but I simply cannot fault anyone who feels better with a paid off home.  and I think we would be stunned to know how many actually have their homes paid off.. its more than you would think

I wanted to buy a townhouse in Vegas 2 years ago ( well my wife did) we don't owe much on our personal and being self employeed at the time I had too many mortgages so the RMLO is trying to talk me into refinancing all this dead equity I have in my personal resi.. I told him forget it.. not happening I am going the other way I am paying it off.. and just about there.. and I save for 2 years and ended up paying cash for the vegas place.. it all worked out. we move in next month for extended stays and tax treatment.

 Thanks for the great feedback. Your a smart man by staying discipline and sticking too your guys by keeping your "dead equity". My wife and I feel the same  way when it comes to our personal residence. As far as the information I've got now. Free and clear is a blessing. As I grow in Rei maybe my mind will change, who knows !! I think free and clear is a great goal to have for anyone.

For you, the buy and hold investor, “cash-on-cash”, as a measure of the return, is your true measure of performance.

For example, your rental house of 300k that you own outright, house that you net $15k in annual income, the coc return is 5%.

People use leverage, aka a loan, for more than one reason but one of them is to increase their return on their cash.

Play with different scenarios that you’re comfortable with in a real estate-related spreadsheet or calculator (meaning the amount of leverage) to see how the returns are different. In other words, see what cashing out 50% from the rental and putting it into another property looks like to see what the individual and combined returns are. All things being equal (property’s expenses and rents), you will see that your returns are greater with leverage. That’s why people use leverage and why few people simply pay their mortgages down. In fact, most pull money out at the right time to put that equity to use in another property.

Also, today’s money is worth less than next year’s money when there’s inflation. That means you’ll be paying back a loan with the future’s devalued money. And, don’t forget, all of the interest is deductible, something you don’t have with an all cash, 100% owned property.

@Isiah Ferguson - Even if you have the money to pay off, I wouldn't do it, but I'm just speaking financially, not emotionally. As others have mentioned, if you think about all the aspects, especially the fact that your wife wants a free and clear primary resident, the answer could be different. 

@Marcus Johnson The fact that 99% of foreclosures are with people with mortgage has nothing to do with weather it's a good idea to have a mortgage or not. This is like saying 100% of the people who got fired used to have a job. It doesn't mean having a job is bad.

If you have $100k in your pocket, you'll make more money by buying four or five $100k rental houses with mortgages than buy one $100k house with cash, even if you invest the extra money. This has been discussed a lot here at BP.

You don't pay any interest to the bank, but when you calculate the interest deductions, total rental income, mortgage paydown and the appreciation, you'll ended up with less money in your pocket by not having a mortgage.

@soh tonka
Again what you fail to calculate is risk into your matjematics. If everything goes perfect leverage always comes out ahead. But if life takes a bad turn you could lose everything. This why a paid off mortgage is a guarenteed return. You’re just speculating that nothing bad ever happens in life. As for a tax right off being the reason you have a mortgage proves that people can’t do simple 1st grade math. If you pay 10k in interest to the bank, at tax season you don’t get to write of 10k you only get to write off your tax bracket % which turns out to be $2500 in most cases. Not such a great deal.
For me I’m sonewhere in between with the risk = reward calculation. It’s served me well and. Can’t wait to have all of my properties paid off someday. I’ll sleep much better. The borrower truly is slave to the lender.

@Marcus Johnson - I agree that you'll have more money in your pocket when you pay no tax vs pay tax. I was just saying at the end of the day (as you admitted), you'll be ahead after all the dust is settled. 

Regarding to the risk, one can argue that the paid off house is riskier! We are getting to a point where it's not so much about math but more so with preference. For example, if you have too much equity in your house (paid off house), you might get sued easily. Or because you put so much money to a house to get it paid off, you might have limited cash. That's risky. Or because you put all the money in one basket, you are not diversified, so that's risky also. And because the "return" is low when you pay off the house because you are only saving/gaining 3-4%, you may not having enough cash. 

You don't have to agree or do what I say, but I think it's important to really understand both sides and make a decision. I know people who are successful and all about paying off mortgages, and I also know a lot of successful people who are all about leveraging.  

@Isiah Ferguson First, congrats on owning these two properties free and clear

Now, when it comes to the Mrs., we as men need to show wisdom. I think she has a point of owning your primary residence free and clear (although many can debate that all day long), and you also have a good foresight of growth: scaling up quickly. 

However, since marriages are meant to be about compromises, why don't you guys meet half way. 

  • Cash out refi both assets, use half of the proceeds as DP on the primary residence.
  • Use the other half to buy your multifamily asset. 

WIN-WIN 😃

In these cases, there shouldn't have to be a right or wrong answer, you know. 

Hope this helps, Isiah. Goodluck. Thanks! - Ola 

Do a 1031 Exchange to a wife that agrees with you! (just kidding there's millions of us that wish our significant others were as financially conservative as yours, sounds like a keeper).  

You haven't mentioned the numbers but could you refi, pull out enough money to pay cash for a home that she would be happy with and still retain enough cash to use as a down payment on an additional rental property?  This would get both of you what you want.

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