Would you pay off PR or Rental first?

11 Replies

OK for those of you that only have a handful (or 1) rental and a personal residence, which would you pay off first and why?

A couple assumptions-

-You have a lower pay off amount and a higher interest rate on your a rental.  You would have a lower rate on your PR, but would save a lot more with a paid off PR.

-You are going to be at your PR for a while.

-You have your comfort level of liquidity after paid off, as well as being comfortable with your amount of rentals and money in the market. 

So which would you pay off first and why?  What is your thinking?

(Also, this is a hypothetical.  I know I can leverage up to buy more assets. I get it)

Given your parameters, I would pay off my primary residence first. If I was going to sink my money into real estate such that it wasn't going to be working any more, I'd want it on the place that I need to live in, and that would let me relatively easily access a line of credit against if I wanted that money back. 

@Joe M. , this sounds like more of a personal finance question than a real estate investment question.

I would pay off the primary residence. That gives you the most relief on your personal finances month to month. Also, your mortgage interest on your rental will still listed on your Schedule E and be deductible whereas if you paid off your rental mortgage the interest on your personal residence might not be if you aren't over the standard deduction.

BTW. I grew up about 45 minutes or so from Erie! 

Residence. No question. Let the rentals cover you and the rentals will be the most deductible. Also lines of credit are easier to get on the primary residence. 

Originally posted by @JD Martin :

Given your parameters, I would pay off my primary residence first. If I was going to sink my money into real estate such that it wasn't going to be working any more, I'd want it on the place that I need to live in, and that would let me relatively easily access a line of credit against if I wanted that money back. 

If no parameters, what would you do?  Or what would be your thought process if you were happy with number of rentals you had? 

Originally posted by @Kevin Sobilo :

@Joe M., this sounds like more of a personal finance question than a real estate investment question.

I would pay off the primary residence. That gives you the most relief on your personal finances month to month. Also, your mortgage interest on your rental will still listed on your Schedule E and be deductible whereas if you paid off your rental mortgage the interest on your personal residence might not be if you aren't over the standard deduction.

BTW. I grew up about 45 minutes or so from Erie! 

Isnt it all personal finance? hahah

It is a great place.  45 minutes which direction? haha

 

I kind of figured people would say PR.  I was wondering with the higher % and lower amount, people would go the Dave Ramsey snowball approach

If you were using the Dave Ramsey you would be paying cash for everything! Jokes aside I would pay off the personal residence. Beside what people have listed your debt to income ratio would look more attractive when applying for more realestate. If a big deal came about you would have easy access to a HELOC to pull equity out.

Originally posted by @Joe M. :
Originally posted by @JD Martin:

Given your parameters, I would pay off my primary residence first. If I was going to sink my money into real estate such that it wasn't going to be working any more, I'd want it on the place that I need to live in, and that would let me relatively easily access a line of credit against if I wanted that money back. 

If no parameters, what would you do?  Or what would be your thought process if you were happy with number of rentals you had? 

Given no parameters and assuming I didn't want any more rental property, I would probably pay off the primary and open a HELOC on it, then pump excess cash into a reasonable low-cost S&P/Whole market index fund like Vanguard. I don't think I would pay off rentals - assuming you have low interest loans, the return is not that great and real estate is one of the most illiquid investments there is.

Originally posted by @Joe M. :

I kind of figured people would say PR.  I was wondering with the higher % and lower amount, people would go the Dave Ramsey snowball approach

I paid off over a dozen rentals before our PR.  But I had commercial, private, seller-financed and a couple balloons.  The rates were also above 6%, the PR 3.375%.   

In your case I'd still consider the rental, depending on how many more years the primary will take. More flexibility and options with paid off RE.