Updated almost 10 years ago on . Most recent reply
Should you pay off real estate?
Most of us, ages would acknowledge that it is best to pay off real estate loans ASAP. In fact, that is what we should do with all loans. That is the accepted and conventional wisdom that we have been taught; i.e. to be debt free. This is surely a salutory goal, yet is it always correct advice?
We were taught this maxim by our parents who were probably in their 30's-50's around 1980. According to The Freddie Mac Primary Mortgage Market Survey® (PMMS®) which began in 1971, October of 1981 rates were 18.45% and November/December of 2012 rates were 3.35%.
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Another popularly accepted maxim we have learned is that "cash is king". What having cash allows is for three things:
1) The ability to pay for unexpected expenses.
2) The ability to quickly act to take advantage of good investment opportunities.
3) The peace of mind knowing that you can do #1 & #2 because of your cash position.
-------------------------------------------------------------------------------------------------------------------Let me ask you this:
If you can make an average of 14%-30% ROI on money you invest into real estate, then why would you rush to pay off a 5% note with your extra cash? As long as you are able to meet the note obligations at 5%, then wouldn't it be better to keep your cash available for new opportunities?
If you had a note at 12%-19%, then it would make sense to pay off that loan ASAP. In other words, review some of the conventional wisdom you have been given.
I respect my elders and their advice, however, make sure that the advice you decide to follow fits with your current economic environment and not your parents' or grandparents.