Buy and Hold Investing

9 Replies

I am having a difficult time trying to decide which is a better strategy for buy and hold investing.  Is it better to invest in as many rental homes/units as possible as I make money from my job/the rental I own or use the money to pay down the loans on a property before acquiring any new properties?

What is your goal?

For passive retirement income, you would probably want to use leverage to acquire the properties and then deleverage as you get closer to retirement.

If it is to replace income from your job, you will have to take more risk and will need higher levels of leverage.

@Steven Wertheim unless you can't qualify for a new Lian and the interest you'll be saving is more than you could make on any other investment, and if your goal is to accelerate your net worth and cash flow, then you should not pay down your current mortgage any quicker than you need to.

Basically, it almost never makes sense from a business perspective to aggressively pay off a debt. 

We just pay off the 30 year as a monthly expense.  When we get through renovating this last property we bought we will get it financed and put the money on a new investment.  On This last purchase we made we are doing the BRRRR (BUY, Renovate, Refinance,  Repeat)

Thanks everyone, this is very helpful.  I have been doing a lot of reading and getting very mixed results on this concept.  People seem to make it such a big deal to have their properties free and clear before acquiring another, but it made more sense to me to acquire as many properties as possible as long as you are getting positive cash flow from each.

@Steven Wertheim This is a topic that I've thought a lot about lately. Before I got into REI or even started learning about it, I was very debt-averse. We put a lot of money down into both of our house purchases, paid off our cars ASAP, etc. I'm trying to retrain my way of thinking as much as possible because in this business if you don't leverage you are completely stunting your growth.

@Steven Wertheim good question and congrats for being in a position to have to consider it.  Glad you have options.  A lot of folks don"t.  Just peruse all of the "I have no money but want to invest."  Talk about an oxymoron!

As I have grown in my career I have become more open to paying things off. It is so peaceful!  When I was starting out, I was just focused on growth and my risk meter was broken.  This was in the 6.5% mortgage rate world, but prices were lower.  It's not hard to beat 4% return-wise, so financially it makes sense to leverage and grow.  Just don't forget risk.  100% of foreclosures happen to a property with a mortgage on it!  

Whichever you decide to do, I would stay away from credit cards and car payments.  Once I got completely consumer debt-free, my disposable income skyrocketed.  Do what is comfortable for you.  If there was such thing as 'good' debt, it is real estate.  No wrong answer here.  If you want to grow, use leverage.  I would only have a paid off house or 2 without it.  With it, I haven't had a w-2 job in over 12 years.  Good luck and please keep us posted!

This is a "depends" question.  If you are lucky enough to enjoy a job/ profession and have several years before retirement, I would argue to pay down the debt before purchasing the next property.  This is the Dave Ramsey way.  I think this can be successful and is less risky.  

I also believe if you buy right and in a lower price range, you would be amazed how fast you can pay off a mortgage if you really put your mind to it.  (Another Dave Ramsey point).  To me, taking your RE investing career one step at a time seems prudent and again, gives you time to get your feet under you by building a equity position.  

Originally posted by @Steven Wertheim :

Thanks everyone, this is very helpful.  I have been doing a lot of reading and getting very mixed results on this concept.  People seem to make it such a big deal to have their properties free and clear before acquiring another, but it made more sense to me to acquire as many properties as possible as long as you are getting positive cash flow from each.

Also long as you can get normal financing and find good deals I would leverage as much as reasonably possible.  When you get to your limits of normal lending - you may want to become a little more conservative.

Originally posted by @Steven Wertheim :

Thanks everyone, this is very helpful.  I have been doing a lot of reading and getting very mixed results on this concept.  People seem to make it such a big deal to have their properties free and clear before acquiring another, but it made more sense to me to acquire as many properties as possible as long as you are getting positive cash flow from each.

 I think you hit the nail on the head, obviously everyone is going to have different opinions but given the low interest rate environment we are in, as long as you are getting positive cash flow I think you should use leverage to your advantage until you get to a point where you'd like to take a break and start potentially using all of the cash flow your receiving to pay down one mortgage at a time. This way, you will have multiple streams already coming in and will be able to make larger payments at a time on each of the mortgages. Just my two cents, but this is how I envision my business plan working a couple of years down the road. Congrats on beginning a successful RE venture!

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