Who is paying off loans?

Question

With literally all attractive national markets peaking or already peaked and attractive deals in very short supply, how have you changed your investment strategy?

After speaking to a few investor friends and hearing that they are actively paying down debt in their portfolio or paying off loans, it’s something I’m considering.

Agree/disagree? Why? Why not?

Shoring up cash for what you think will be an upcoming buying spree?

Will there actually be a large drop in pricing (in attractive markets like AUSTIN, even when prices hit bottom of cycle, I’m not sure they’ll be decent deals where money can be made).

Thoughts?

Aaron K. · Answer

Paying down only returns 3-5% in interest you save on the loan but that is better than 1.5% in the bank, it is a good idea if you are close to your limits on leverage but otherwise it may not be the best move.  In a true downturn many of the people who've been "waiting for the downturn" won't actually buy because it is scary and the argument will become people trying to catch a falling knife.

Jacob Sampson · Answer

I am, but that has been a part of my business model for a while (the last 3-4 years), not due to the current market.  Each year when I sit down to establish my goals I define the qty of units I want to purchase and the qty of units I want to pay off.  At the same time, I do have a LOC on my real estate to make sure that paying off properties never stops me from jumping on a great deal.  If it did that would make the paying off way too expensive.

I certainly hope there will be a large drop in prices.  I would love another 50% dip in housing and stock market prices.

Jacob Sampson · Answer

I have no argument against @Jaron Wallings advice.  I absolutely get the mathematical reasons.  And there really is no value in making extra payments until a property is actually paid off.  Equity is second only to cash.  I just really like the spike in monthly cash flow each time I pay a property off.  And as long as I never miss out on a deal because of it, I am ok with the move.

Jaron Walling · Answer

Why build equity when you can stack CASH for the next downturn? I'd maintain a safe level of equity in all my properties and refinance everything else. Utilize the cash for buying power when DEALS start showing up.

In my opinion it's slowly going to happen. People are leveraging poor deals and buying cars on 7 year loans!

Hai Loc · Answer

Would you try and fully pay off mortgages on some properties and leave high LTVs on others or keep them all balanced?

Jaron Walling · Answer

@Aaron K. 100% agree. You gotta take the leap at some point. I bought a s**t box house that would cash-flow, added some sweat equity, and went for it.

Who is paying off loans?

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