Actual return on investment various pre payment strategies

[Kenneth LaVoie]

I know conventional wisdom says "if you pre pay a mortgage, your ROI is whatever the interest rate on the mortgage is". but I KNOW there was an article here that I've since lost track of that showed it's NOT the case. For some reason, you can capture a GREATER ROI than the stated interest rate depending on how early your pre payments are and how much. He laid it all out, and like I said, I THINK it was an article on this very website. Does this sound familiar to anyone?

[Joe Villeneuve]

Neither is correct. Stop analyzing RE like the Stock Market. They're not the same thing. When you do, you are missing out on most of the advantages REI has to offer. For instance, in this case, here are the key points:

1 - Profit in rental REI is measured mostly in cash flow...POSITIVE CF.

2 - PCF is the result of the spread between the income (rent) and outgo (expenses)...per month/year.

3 - Profit is a measure of the difference between the positive cash flow, and the amount of cash you put into a deal from out of YOUR pocket.

4 - Since the mortgage (interest and principle) is paid out of the rent, which is paid to you by the tenant, the mortgage is NOT a cost to you...but a cost to the tenant (indirectly).  This is a "follow the money" application.

5 - This means, ALL the cash you put in must be recovered before you are making a profit.  The more cash you put in, the longer it takes to recover and the longer it takes to the start of your profits.

6 - Therefor, when you add any of your cash to the principle, at any time during the ownership of a positive cash flowing rental property, you are spending money that you need not spend...and getting no real savings to you.  It actually costs you more money.

7 - The tenant's job is to pay the mortgage for you.  Don't help them.  They are doing a great job of it.