Save positive cashflow or payoff mortgage faster?

6 Replies

Hey everyone, 

I'm under contract with my first 2 unit building here, closing within the next month or so.  After the deal is done, I should be positive cash flowing about $500/mo.  My question is, and curiosity to what other buy and hold investors are doing, is the following. 

Do I A) save that cashflow and let it accumulate to a point where I use that for a downpayment on another buy and hold property?  or B) at the end of the year, do I take that $6,000 in annual cashflow ($500x12 months), and apply that to the principal on the mortgage to pay down the loan as fast as possible.  

My overall goal is to build a rental portfolio where it 100% replaces my income and covers my families monthly expenses.  I own another business and our household monthly income comes from this primarily, I don't need the cashflow on a month to month basis for personal expenses.  

Any feedback would be greatly appreciated.  I love the idea of getting the mortgages paid down as quick as possible, however, I don't want to put off acquiring additional rentals until each unit is paid off.  In the course of say 10 years, having 3 units free and clear OR within that 10 year time frame have say, 20 units with mortgages on all, but all are cash flowing.

I would do both if it was me. First I'd build up an emergency fund though. Then save half for the next purchase and put half down on the principle. Really depends how much risk you want to take on and how big you want to go.

Accumulate cash first. Emergency fund and money for good deals. The mortgages will pay themselves down on their own while you figure out what to do.

I love paying down debt too. But once you send the cash into a loan you can’t get it back quickly.

@Kyle Davis If your business plan states that you will accumulate as many Buy-and-Hold properties as possible based on the cash flow model, I would just save the excess cash flow to acquire additional properties. If you choose to pay down mortgages, I would recommend one change to whay you've outlined, Instead of paying a one-time annual payment of $6,000 at year-end, I'd suggest making the $500 payment monthly, It will reduce your principle balance faster than if you were to make one payment at year-end.

Reinvest the cash. More properties, income fund, REIT ..basically anything that will earn additional income.

Dead equity in a rental property is a financial sin. You only want to pay down a rental property mortgage when you have so much money that you simply need a place to park useless cash. Equity kills cash flow and is where money goes to die.

Thank you all so much for the input, very helpful info.  Much appreciated!  

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