How to Determine Enough

[Paul Novak]

I am curious how other people have come to determine when enough is enough on purchasing more real estate and if/when to pay off their properties?

For many years now I have been tracking my personal expenses and know how much money I want to make to sustain the lifestyle I want. I have then tracked two main metrics around my rental portfolio, current monthly cashflow and what my cashflow would be if they were paid off in full. Once the paid off in full metric reached my goal, which it has with my last rental purchase, my idea is to pivot my strategy from acquisition mode to debt paydown mode. The goal is once my properties are paid off work will become optional.

What I have found with my friends that are in real estate is that no one has an end point. They have found something that works so the goal is buy a property, stabilize, build your cash back up, repeat. Not that there is anything wrong with that but I think there must be an end point at some time.

I also find that many people don’t want to pay off their debt because it lowers their cash-on-cash return and it reduces the tax deductions with mortgage interest.

I am looking at it this way. I currently have 6 properties, 8 doors. If I was to repurchase the same properties, at the same price, with the same loan terms and same rents I would need to go from 6 properties to 13 properties to generate the same cash flow. Knowing the deals I would be purchasing today wouldn’t be as good out of the gates as when I started 4 years ago, I would probably need more like 15 properties. Yes, my tax deductions would increase, and my wealth would be growing much faster having appreciation on 13-15 properties vs. 6 but if it’s generating wealth that I don’t need what’s the point?

Are you guys on the path of never stop growing or do you have an end point? If you have an end point how did you calculate it? Does your end point include paying off your debt or do you plan to let the mortgage payments pay off your properties naturally over time? No right or wrong answers here just curious about other investors’ thoughts on this topic.

[Greg Kasmer]

@Paul Novak - I like the metrics you are tracking... but would suggest one more. Track your overall equity in the properties. Reason is that if you could sell all of them at once what would be your total cash at take home? Then, if you invested that at 4 or 5% interest would that be enough to live off of comfortably for you? So, if you had $2M in equity that could potentially kick off 100k a year at a 5% interest rate. Would that be "enough"? Everyone is different, but this is an exercise I recently considered.... Good Luck!