Extra 50K better to pay down a Rental Mortgage or Re-invest

4 Replies

This type of question may have been asked in the past.  

If I have 50K in cash to invest outside my retirement.

Is it better to pay down the liabilities on my rental properties that have mortgages at 4% or invest in another property that generates 8% cash on cash and use that money to pay down all the debt, including the new mortgage it will have?

I think I know the answer, but curious what others might do with the 50K.  Some say accelerate paydown, others say debt is cheap, so buy another property with the 50K as down payment, borrow the difference and keep going.

@Peter Schuyler I would keep investing and reinvesting. Let the debt be paid down over the 30 years and use the income the properties are generating and keep growing your portfolio. I would also look at maybe selling and doing a 1031 exchange into either a bigger or more profitable property/properties 

On this forum, you are likely to get about 90% of the people saying to reinvest the $$....you will get way better returns than paying down a 4% loan. Which is likely very true if you do the right thing with the $$ and can tolerate some risk....risk that includes losing $$.

Go to a Dave Ramsey or Suzy Orman forum and you will get 90% of them saying to pay off your debt.... its a much lower yield on your "investment" but very low risk.

It really depends on your risk tolerance and what you want to do...what is your goal? If you want to expand and generate more and more cash flow then you keep leveraging and taking on more "good" debt that pays larger rewards.

If you can pay off your mortgages quickly and own the properties outright and the cash flow from them will be all you need to reach your financial goal, then that may be the best path for you

If you want to build wealth, invest the $$

Originally posted by @Ned J. :

On this forum, you are likely to get about 90% of the people saying to reinvest the $$....you will get way better returns than paying down a 4% loan. Which is likely very true if you do the right thing with the $$ and can tolerate some risk....risk that includes losing $$.

Go to a Dave Ramsey or Suzy Orman forum and you will get 90% of them saying to pay off your debt.... its a much lower yield on your "investment" but very low risk.

It really depends on your risk tolerance and what you want to do...what is your goal? If you want to expand and generate more and more cash flow then you keep leveraging and taking on more "good" debt that pays larger rewards.

If you can pay off your mortgages quickly and own the properties outright and the cash flow from them will be all you need to reach your financial goal, then that may be the best path for you

If you want to build wealth, invest the $$

 Great summary, sometimes we just need to be reminded of the obvious.  Thanks for your reply.

It boils down to maximising returns or minimising risk (in theory).

Make your cash earn it's keep or take surplus cash and hoard it for someday maybe.

Odd thing about cash hoarders is that although they think they are being ultra conservative dead equity actually places your money at a higher risk. It attracts lawsuits and is a personal monetary loss when markets turn. Income properties with high equity are a liability. Buying cash flow with cash.

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