Mortgage payoff strategies

4 Replies

We own two investment properties and are cash flowing $1150/month between the two.

This is not spending/Vegas money.

I don't need to build an empire, but we would like to have a portfolio of 5-6 doors to pad our retirement.

Originally, I planned to use the cash flow to pay down one property at a time, while preparing/saving to purchase another. However, recently I started to think that if I save the cash flow on a monthly basis, realistically in 12-18 months, I would have enough for another down payment. Plus, by this time properties would be seasoned and the bank would be willing to loan us more money. We would complete this cycle three times until we had our 5 doors, then use the cumulative cash flow to start paying off the houses.

My thought is that the interest rate on these two houses is very low, so not a huge loss there. And, I am willing to extend my payoff timeline in lieu of acquiring more properties.

I figure by the time I am 40, I would have my 5 doors, and would start focusing on paying it all off.

@Marcia Maynard

@Curtis Bidwell

If either of you have any guidance on this it would be very helpful.

Thanks, Chris

I would keep buying, your young, babysit them til they are paid off.

Hi @Chris Stromdahl !  Looks like your getting good cash flow so far!  A few thoughts come to mind:

Determine your goal.  Paying things off before buying another is slow but certainly secure.  Given your solid cash flow, I'd establish a solid reserve and then expand while you can still lock in low interest. I'd target 25% down to make sure you have solid cash flow in a crunch.

Interest is low ... Time to grow! 

Rents are on the rise. I am up almost 5% over last year.  I wish I had more units! (I'm actively working on it!)

Non-owner refi rates are usually about 70% ltv. You can generally only access equity beyond that.  

The nice thing is, rents are increasing exponentially faster than escrow in our area. If you have a fixed rate your income will continue to grow even as you slowly pay down your mortgage.

PS Hope to see you Monday at the Tacoma meet up! 

@Chris Stromdahl Sorry for the late reply. I was vacationing in Northern Europe and just returned. 

I like your idea and the comments made by @Curtis Bidwell . He is spot on.

Get a good terms/good interest mortgage and keep it performing. We favor large down payments for stability and cash flow. We've been saving our cash flow and entering into a new property every 5 years. Some single family and some multifamily. Now at 16 doors. Ten or less is easier to self manage. We are aiming for 20 doors for a healthy retirement and to be able to afford to hire out more of the maintenance work and turnover work. 

The solid reserve is essential. For greatest stability, aim for no consumer debt and a primary home paid in full. Build and maintain a great credit score. With a credit score of 750 or more, you will be able to get the best financing terms. Use financing for your investment properties, with at least 25% down. Also work with a good insurance agent to cover your risk. Include a hefty umbrella policy.

Your strategy sounds like a good one to me.  Buy prudently and save the cash flow for the next purchase until you find the right opportunity.  Too many people get in trouble in the industry trying to grow too fast.  

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here