Buy more properties or pay down mortgages?

Question

Hi all,

My wife and I have been investing for a few years now. We are up to 17 units (8 properties) and are trying to decide if we should continue to buy more duplex/triplexes. We are buying and holding so that the cash flow will help fund our retirement which is another 10-15 years away. We are not sure if it would make more sense to starting paying down the mortgages to increase the cash flow for our current portfolio. I wanted to get some advice and what others would do or if they have had similar situation.

Thanks,

Matt

Tyler Gibson · Answer

@Matt Ides I think that the answer is depends. Helpful I know. If you are still in growth/ acquisition mode then pay down is probably not the right move yet. If you are looking to stop growth and work towards more cash flow then yeah start paying off the loans. That may reduce your tax deductions but it would increase your cash flow.

Bruce Runn · Answer

I have a similar set up with 2-3 unit buildings and let places pay down but take HELOC’s out to capture and use the equity if I need it

Todd Rasmussen · Answer

@Matt Ides

If current net income plus debt service is sufficient for retirement, then pay added principal to have them all paid off at 10-15 year mark and buy as you are able. If it's not, prioritize buying more until it is and then pay down. Nothing wrong with carrying good debt into retirement, however timing your debt to be paid off in the same month you retire might be the best retirement gift ever.

Matt Ides · Answer

Thanks for the newest responses. We would only use the cash flow from the properties to pay off the current mortgages. My wife and I both work FT and we are maxing out our retirement accounts and can cover our bills monthly without any problems. We don't have a lot of liquidity at the moment since we leveraged quite a bit in 2018.

Anthony Wick · Answer

@Matt Ides

If it was me, I’d make sure my reserves are aplenty first, and then buy more properties. You don’t need the cash flow right now, interest rates are super low, and you still have many years before retirement. Plus, just let your tenants pay down the mortgage. It’s literally their job. My non-real estate investments made 26% and 30% last year. Imagine if I had used that money to pay down my 4.5% mortgages instead.

Bob Green · Answer

Hello Matt,

Do you and wife have full-time jobs?  How does your current liquidity look?  Assuming that you have a full-time job and liquidity is ok, I would leverage available funds via different financing options to continue to grow portfolio and If you do not depend on the cash flow to pay your monthly bills, my advice is to pay down the mortgage ASAP.

John Woodrich · Answer

@Matt Ides as mentioned this will depend on your goals.  As an experienced investor you understand that more units will largely create more work at the same time.  I think you need to spend a little time on your goals, figure out what your retirement "number" is, how you want to live in retirement and plan backwards from there.  You have a lot of time left if you plan to retire in 10-15 years and you may decide you don't want to retire with $2M in debt so putting things on cruise control may be the best option.  You have more options than a typical investor.  Like @Bruce Runn I also like utilizing LOCs on properties, there is some freedom in having paid off properties.

From a purely investment standpoint - most investors can get a better return investing in new property vs saving interest but your retirement goals and how you want to spend your time should be considered.

Matt Ides · Answer

Thanks all for the replies. We are currently in the Twin Cities Market with duplexes and triplexes. So far our model has worked well with putting down $80K -$100K and our goal is to cash flow at least $800-$1,000 per month for any new property. What we are struggling with is that instead of putting the capital towards down payments we could in the next few years pay off a few of the mortgages which would increase our cash flow without adding more units to the portfolio (less risk and no additional repairs costs). I haven't done any deep analysis but by paying off some of the current mortgages ,this increases our cash flow, which then snow balls into paying off more of the remaining mortgages faster.

Our goal was to re-evaluate when we hit 10 properties or 20 units but we are close so I am trying to evaluate now what would make sense. I do realize lending rates are very favorable and there seems to be an uptick with bank owned properties in the last few months so some good deals might be had.

Tom Shallcross · Answer

@Matt ides - i flip-flop on this one as well.

Today i say buy more while financing is cheap.  Ask me again tomorrow and we'll see if I give the same answer :)

Kiera Underwood · Answer

@Matt Ides I'd continue to buy while lending is still pretty affordable. Are you diversified or all in one market?

Buy more properties or pay down mortgages?

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