Keep Buying or Pay Down?

4 Replies

Hello BP community! We are currently investing in multi-unit (4plex) properties that range anywhere from $60-120K. Our goal is to obtain 40 of these properties within 20 years and hold them. We obviously want to be as efficient as possible and get to our goal as fast as we can. My question is this: should we pay off a few properties up front to generate more capital for future investments or continue to buy units until our goal is achieved and then worry about paying the notes down? Thanks again for all of your input!

Hello Josiah,

It depends on a lot of things- purchase price and interest rates, how much the banks will allow you to borrow, and your debt to income ratio to name a few.

Our strategy is to get as many loans as possible as long as the rates are low and the lenders will keep lending.  Once we hit the max # of loans we may consider paying off some of the lower balances to get new loans, may pay off our home since that is our only liability not producing cash flow, might explore other means of obtaining more loans.

While we are in acquisition mode, it makes much more sense to keep and use leverage to buy more properties rather than pay off loans.  For example, we owe about $48k on our first rental.  Paying it off would mean about $250 more cash flow per month- great, right?  But if we used that $48k towards another rental house, we could go put 30% down on a property with a $150k purchase price and get more cash flow than the $250 per month.

Just my 2c.


Kelly, thank you for your input! It makes sense to use leverage like you said, but when the banks stop financing, start paying down debt. Thanks again.

I am with Kelly on this one. Keep using the leverage while you can until it runs out. Even then you might be able to continue, but it will just take a little more creative thinking. If your goal is to obtain 40 properties of this sort it'd be a little difficult to pay them off and acquire that many at the same time. Just my 2 cents.

At some point we are going to have another downturn, hopefully it will not be as bad as the last one.  Whether as a cause or as an affect the banks will stop lending (in reality-they will just slow down) and those who have cash will be able to pick up some good deals even it is only from borrowers whose loan is due and can't find a bank to refi with.  

I suggest doing what @Kelly N.

 suggests but when you think things are about to go down, then sell a few and hold on to the cash to both help you weather the downturn and to pick up a great deal or two.  Worst case you're wrong and then you have the cash to buy a distressed property. 

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