I know people have different opinions on paying off rentals but for those who have how do you like it? Did it allow you to buy more properties faster,did you pay for the next property with cash or did you end up taking loans out on them later down the road? If you had to do it over again would you pay them off?
Looking forward to the reply’s.
Tj
Paid off rentals are great it gives you holding power. Regardless of economic conditions, you will be able to survive it. I am taking one variable out of the risk of investing by having it paid in cash.
I understand both sides of leveraging and owning houses outright. In the beginning, an investor needs equity and leveraging is the best way to attain it. Towards the middle (10yrs) of the investment career that need may not be as great and they want more cash flow. That is when an investor wants their units paid off and netting them more money per deal.
At some point, you have to evaluate your portfolio for risk and time. Do I want to own 30 houses netting me $200 a unit or do I want to own 7 houses cash that pays me the same? What has more risk 30 houses with loans or 7 houses paid off? How much time will I have saved owning 7 vs 30?
Having your money sit in your house is NOT DEAD EQUITY. I understand why someone would say that but if my house pays me every month it is not dead. It is being utilized as the exact tool that I planned. It's like saying someone who invests in treasury bonds is dead equity. But no one ever says that.
In the end, it depends on the investor and how they run their business and what's most important
@Tj M. Most definitely! I transitioned from single-family homes to buying mobile homes with cash. It's been great and quite profitable. The best thing about having paid off properties is not worrying about having to pay the mortgage every month. The cash flow is great. Everyone's situation and opinion is different. But personally, I'm glad to make the switch of having properties paid for and owning them free and clear. Hope that helps!
It amazes me that HELOC is only mentioned in 2 posts here... and not in the most productive context. Let's mix in the HELOC and see what we can do ;)
If you are able to, why not pay off your propertie(s), whether it's up front cash or over time, then go get a HELOC? This way you have access to your equity at a cheap-ish rate. You are basically turning your paid off house into a bank. A bank that you can borrow from and pay back on (mostly) your terms. Ultimate flexibility... I'm no pro but my journey is below. It's a mix of free and clear properties, HELOCs, and BRRRR.
House #1 SFH: 2015, invested all of my cash on purchase and repairs, 32k total. Own it free and clear. Rented her out. Went and got a 20K HELOC from my bank
House #2 SFH: 2016, went out trying to find a home for <20k, to use "other people's money" aka the HELOC to pay for it. By the time I found #2... I had already saved the enough for the purchase price. Bought it free and clear then used the HELOC to slowly fix it up. Used rent from #1 to pay back the HELOC during repairs. Once #2 was rented I used rent from both homes to pay back my HELOC superfast. At this point, I still have access to the 20K HELOC. And I have two homes free and clear.
Then I took a mortgage on home #2. Heck, i read too much bigger pockets about BRRRR and I got greedy. I pulled a mortgage out of #2. So I took 63K out from the bank and went to work. 333/mo mortgage payment.
House #3 SFH: 2017, Bought and fixed free and clear using a portion of the 63k from the bank. It's rented out.
House #4 TRI: 2018, Bought and fixed free and clear using the rest of the 63k from the bank, + some rental income from #1 #2 and #3... It's rented out.
House #5 SFH: 2018, Bought free and clear using some rental income from house 1 through 4 and again borrowed some funds from my HELOC! Still have that HELOC, still love the HELOC.
At end of 2018 I have 5 fully rented homes, 4 of which are free and clear. Then one mortgage payment of $333/mo (from the BRRRR) and 20k available whenever i want from my HELOC. Love the HELOC. I only ever invested 32k of my own money! The HELOC cushioned me. In times when I needed funds, (roofs, purchases) I used the HELOC, and then paid it back pretty quickly with rent money.
House #6 TRI: 2019.... under contract. For this one I am going FULL ON HARD MONEY. I'm scared but I'm confident. And I enjoy being out of my comfort zone. Guess what. The HELOC will help me again. And the 4 free and clear properties are also helping. I'm using the HELOC to fund origination fees, appraisals, forming an LLC, and for earnest deposit on this deal . I'm using equity in one of the free and clear properties as collateral for my "required 20% skin in the game". Then I'm using hard money to finance the remaining 80% of the purchase/project cost. I will refi out when it's all said and done and successfully lock down a good deal using ZERO of my money. (We'll see how this goes)