Paying off a rental aggressively. Pros & Cons?

Louisville, KY · Member since 2017 · 25 posts · 9 votes

I've got 5 units (Duplex & Triplex) that I've owned for 4-5 years now. currently cash flowing $1500 total.

Since I'm really busy with my job, I've been strongly considering paying off each one aggressively, which would increase cash flow by 2k which would be similar to owning another 5 units, but without the headache of 5 more tenants and the issues that inevitably arise with owning more properties.

Obviously I could use the money to buy more more more, but there's something attractive about owning the rentals outright, then saving the additional cash flow to get the next one and so on.

Anybody here regret paying off a rental or have any advice?

thanks,

Edward

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Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

I paid mine off. With 12 rentals I have a monthly cashflow of $20k/month. I could have gone bigger but I don’t need more. And during a busy time I work an hour a month.

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Thomas Heepke
Member since 2023 · 4 posts · 1 vote
1y
To me this question comes down to three primary considerations: 1. Your personal/investment goals. Are you trying to grow aggressively, generate cashflow or have a nest egg for your heirs? 2. What kind of rates do you have on your debt? If you have 3%, you can arbitrage a few safe investment tools and earn 1-3% just by paying the minimums on that debt. 3. Where are you at in your life financially? I believe a lot of this comes down to a base concept in personal retirement - the older you are, the less risk you should hold. If you're nearing retirement, and are highly leveraged, you are at risk of being impacted severely by a number of economic downturns. If you're leveraged and tenants can no longer pay rent, you may end up having to liquidate, foreclosure, default, etc. and could lose the cflow and take a hit on the asset values as well. If they're paid off, at least you have the equity and control over those assets.
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Thomas Heepke
Member since 2023 · 4 posts · 1 vote
1y
Quote from @James Hamling:

Quote from @Edward Heavrin:

Remember, no matter how much investors promote leverage, interest is still a huge expense. My recommendation: at least one paid for home for every two mortgaged. A built in safety net if you will.
THIS is great advice. I think waiting to buy the next property until I have at least one paid for is a solid plan. Currently have 3 mortgages (2 rentals, 1 primary).
Thanks for your input
The interest is NOT an expense, at least not yours, it's the tenants expense as there the ones paying for it......

I disagree. It's something only you control. If there is no interest expense in the equation, you just pocket that "tenant expense".
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Billy Smith
Shawnee Mission, KS · Member since 2016 · 716 posts · 313 votes
1y
Having all or most of your rentals paid off is a great feeling with the cash flow rolling in .
You know have a bigger shovel to buy more properties , folks get the fever want more more dam the debt full speed ahead .
I read a lot saying what is the rate of the note ,you could deploy the money in ,gold ,stocks etc....
With just a couple rentals paid off in A -B area I put my kids though Division 1 state college.

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Henry T.
Member since 2022 · 1k+ posts · 1k+ votes
1y
Some will disparage, others will envy. Do what works for you. You'll be ok.
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Account Closed
Member since 2024 · 18 posts · 9 votes
1y
Paying off your rentals quickly can give you more money each month and make things easier since you won't have to deal with more tenants or loans. But it might slow down how fast you can buy more places. Some people like owning their rentals without any debt, while others prefer to keep growing. It really depends on what you want—more cash now or more properties later.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Billy Smith:

Having all or most of your rentals paid off is a great feeling with the cash flow rolling in .
You know have a bigger shovel to buy more properties , folks get the fever want more more dam the debt full speed ahead .
I read a lot saying what is the rate of the note ,you could deploy the money in ,gold ,stocks etc....
With just a couple rentals paid off in A -B area I put my kids though Division 1 state college.

agreed quality paid off rentals are about as solid as you can get.. not only that you have less maintenance and turn over for the same income.. what one misses is appreciation if thats your goal.. more props that all appreciate more wealth depends on your situation.. I am firmly in the paid off category less work myself.. But i think its an age thing to as we grow older kind of like to simplify life etc.
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Alan AsriantsBusiness Member
Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
1y
Quote from @Todd Goedeke:

@Alan Asriants there is no added time or added risk when buying properties that one triple net leases.
All the drawbacks you mentioned are eliminated with NNN leasing owned properties.
If the interest rate on the loan is low enough in relation to income received, there is no financial point in eliminating leverage, mortgage.

Triple net is usually associated with commercial loans. Never heard of NNN in residential. Most commercial loans, especially property class dealing with NNN do not have 30 year fixed rate mortgages. There is likely a balloon payment, so you cannot control your rate all the time...
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Ke Nan Wang
Developer · St. Augustine, FL · Member since 2018 · 311 posts · 384 votes
1y
This is a personal preference thing, based on an extensive amount of people I've encountered in my life, to 99% of the people out there, pay off the mortgage is the way to go if they can.

99% of the people in the world would be beyond content with financial freedom: meaning, in general purchase whatever you want (minus mega mansion and private jets), go wherever you want to go, send your kids to whatever school they want to go, and last a life time. That means in today's money, a monthly passive income of $50k and $10 million networth will easily sustain that lifestyle. Based on where you at now, paying off your mortgage and continue to grow steadily will easily get you there in the next 10 years with minimum stress and headache (minus WWIII happening, JK)

If you are someone who are aspire to maximize growth, have a f*k you money and want to get into politics and expand your influences, and also prepared to embrace the headache and stress that come with that lifestyle, then you wouldn't want to pay off the mortgage but put your money somewhere else that would give you maximum return. Usually in order to achieve that, you will need to get into some sort of a business. Real estate alone can't get you there.
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Adam BartomeoBusiness Member
Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
1y
You are missing the magic of compounding interest. The more properties you own the more money gets compounded. You should hire a PM and buy as many properties as you can.
$100k * 6% * 30 yrs = $574k
$200k * 6% * 30 yrs =$1.1m

$300k * 6% * 30 yrs = $1.7m

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