Pay Off House vs. Buying Turnkey Rentals

Salem, Oregon
General Real Estate Investing
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Pay Off House vs. Buying Turnkey Rentals

Account Closed
Wholesaler · Albany, OR · Member since 2016 · 32 posts · 12 votes

Hey everyone,

I'm about to inherit a substantial amount of money through my fathers estate. The amount of money is enough to:

1. Pay off my primary mortgage...OR
2. Buy two turnkey properties for cash through a place like Mid South Home Buyers...OR
3. Buy around 5 turnkey properties via financing through a place like Mid South Home Buyers.

My mortgage payment is approximately $1,600/month. Simply getting rid of that payment would be nice and a huge breath of fresh air.

Buying two properties for cash would bring in enough cash flow to cover my primary mortgage payment.

Buying 5 properties via financing is obviously the most "long term" wealth building option, but also comes with more risk.

I understand most of the pros and cons of each option but I would love some more opinions of these options.

Thanks in advance!

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
3y

3

Do the math.  ALL of the math.

2Reply
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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    3y

    3

    Do the math.  ALL of the math.

    2Reply
  • Account Closed
    OP
    Wholesaler · Albany, OR · Member since 2016 · 32 posts · 12 votes
    3y
    Quote from @Joe Villeneuve:

    3

    Do the math.  ALL of the math.


     Short and sweet lol. I like it! Thanks for the input. 

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    3y
    Quote from @Account Closed:
    Quote from @Joe Villeneuve:

    3

    Do the math.  ALL of the math.


     Short and sweet lol. I like it! Thanks for the input. 

    Did you do all the math?,...all of it?
    0Reply
  • Mike TerryPro Member
    Investor · Fort Myers, FL · Member since 2015 · 293 posts · 278 votes
    3y
    Quote from @Account Closed:
    Quote from @Joe Villeneuve:

    3

    Do the math.  ALL of the math.


     Short and sweet lol. I like it! Thanks for the input. 


     to elaborate a little,  your current mortgage rate is soemething to consider.  If your goal is to build wealth giving up a low rate by paying off a mortgage may not be the optimal decision. Using that capital to leverage positive cash flowing properties, albiet at today's higher rates, is the math you need to do.  If you use the calculators plug in the properties and all the finaicial particulars and evalute the result. Be sure to factor in all expenses on rentals, vacancy, repairs, cap ex, debt service, taxes and insurance.  The good news you are choosing between two very  advantageous scenarios. Paying off a debt is always the safest decision, but with years of compounding could be an attractive choice.

    1Reply
  • Account Closed
    OP
    Wholesaler · Albany, OR · Member since 2016 · 32 posts · 12 votes
    3y
    Quote from @Mike Terry:
    Quote from @Account Closed:
    Quote from @Joe Villeneuve:

    3

    Do the math.  ALL of the math.


     Short and sweet lol. I like it! Thanks for the input. 


     to elaborate a little,  your current mortgage rate is soemething to consider.  If your goal is to build wealth giving up a low rate by paying off a mortgage may not be the optimal decision. Using that capital to leverage positive cash flowing properties, albiet at today's higher rates, is the math you need to do.  If you use the calculators plug in the properties and all the finaicial particulars and evalute the result. Be sure to factor in all expenses on rentals, vacancy, repairs, cap ex, debt service, taxes and insurance.  The good news you are choosing between two very  advantageous scenarios. Paying off a debt is always the safest decision, but with years of compounding could be an attractive choice.


     Thank you for the quality input! You laid out my exact problem (a good problem to have). I think I need to get some more concrete numbers on the rentals and “do all the math”. I know in the long run my 3rd option is the biggest wealth builder but also takes on the most risk. 

    0Reply
  • Zachary Hryczyk
    Investor · Lincoln City, OR · Member since 2022 · 11 posts · 12 votes
    3y

    For me its a no brainer. Find some rentals or other investment propertys with your opportunity and keep the mortgage you have now. You have to take on risk to make money in investing. Just make sure you do the math, get some good deals and your off and running building wealth instead of feeling good about paying off a mortgage, then having no capital to start your journey. Good luck either way 🙂

    1Reply
  • Account Closed
    OP
    Wholesaler · Albany, OR · Member since 2016 · 32 posts · 12 votes
    3y
    Quote from @Zachary Hryczyk:

    For me its a no brainer. Find some rentals or other investment propertys with your opportunity and keep the mortgage you have now. You have to take on risk to make money in investing. Just make sure you do the math, get some good deals and your off and running building wealth instead of feeling good about paying off a mortgage, then having no capital to start your journey. Good luck either way 🙂

    Thank you for the reply! I think this is the way I’m starting to lean. It’s rough given the current market and interest rates but there’s no better time to pull the trigger than the present!
    0Reply
  • Logan Ransley
    Specialist · Denver, CO · Member since 2019 · 27 posts · 9 votes
    3y

    I'd definitely go for buying a couple of rentals. If you're not comfortable with going for 5, go for enough to cover your primary residence.

    Go for this instead of paying down your primary residence because although you will have more cashflow, you're missing out on the leverage of real estate.

    The key things that make real estate such an attractive investment is 1) the cashflow opportunities 2) the steady market and historical appreciation on investments but 3) and this is the main one that jumps out to me - you're leveraging the total appreciation and cashflow of an asset that is much larger than the amount you put down in the deposit.

    2Reply
  • Josh YoungPro Member
    Rental Property Investor / REALTOR® / Property Manager · Gilbert, AZ · Member since 2023 · 385 posts · 421 votes
    3y

    @Account Closed I would start with buying one turnkey property via financing and then go for a second one, just keep going one at a time, you will make mistakes and learn along the way.  You will also offset most of your risk by having extra reserves. 

    [email protected]802-274-8121
    1Reply
  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    3y

    @Nate Hammond Personally I like the third option.

    I’d start slowly and buy 1 and get it stabilized and let it build up some cash reserves on its own then I’d buy #2 and get it stabilized with cash reserves and so on and so forth.

    Once you have the five, assuming you like the business of rental properties or else have a property management company, there should be some cash flow to help pay your personal mortgage. Maybe not all of it but enough to cut it In half or less. All while your tenants pay down the mortgages on the rentals and build your equity.

    When I started out I was nervous about having real mortgages besides my primary residence because I had used private lending for my primary so it never quite felt like it had as much pressure as an official bank mortgage. That is why I started building my portfolio one property at a time where I knew each one would be able to sustain itself. It's also why I ended up switching to 2-4 units after my first purchase of a SFH. There's more rents to cover your debt should one be vacant or someone stop paying.

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Account Closed:

    Hey everyone,

    I'm about to inherit a substantial amount of money through my fathers estate. The amount of money is enough to:

    1. Pay off my primary mortgage...OR
    2. Buy two turnkey properties for cash through a place like Mid South Home Buyers...OR
    3. Buy around 5 turnkey properties via financing through a place like Mid South Home Buyers.

    My mortgage payment is approximately $1,600/month. Simply getting rid of that payment would be nice and a huge breath of fresh air.

    Buying two properties for cash would bring in enough cash flow to cover my primary mortgage payment.

    Buying 5 properties via financing is obviously the most "long term" wealth building option, but also comes with more risk.

    I understand most of the pros and cons of each option but I would love some more opinions of these options.

    Thanks in advance!


     Easy.

    If projection appreciation > mortgage rate /inflation then buy rental
    If projected cashflow >= $300 then buy rental.

    The mortgage system is basically a privilege where the gov. is throwing you a money.
    So the key point here is not buying the house, but buying goverment mortgage that has same rate for 30 years where you're guaranteed winning. 

    So my answer to your question is simple:

    maximize your mortgage as much as possible.

    1Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    3y

    What's your appetite for risk and your stomach for stress?

    If both are high, go for #3.

    Otherwise, #1, maybe #2.

    Logical Property Management4.9455 Reviews
    WebsiteView Page
    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Michael Smythe:

    What's your appetite for risk and your stomach for stress?

    If both are high, go for #3.

    Otherwise, #1, maybe #2.


     She has the most stressful job as wholesaler LOL , so maybe #3 is natural choice :)

    0Reply
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