Invest vs. Pay off Mortgage

Investor · Thunder Bay, ON · Member since 2017 · 83 posts · 22 votes

Hi! If someone has the $150,000 to repay the mortgage in full, should they do it? or invest it? Take a peek at the numbers and notes I put... what am I missing?

https://drive.google.com/file/d/0B0FFPIOkOt3DemtaRXZ4NGc4R0FQVmczXzFiU3ZiVHNuZ0pz/view?usp=sharing

0 Reply

42 views

Most Popular Reply

Andrew PostellPro Member

Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes

@Meghan Chomut a lot of what you are asking is somewhat based on who you are and what you are trying to accomplish. I have customers who just simply can't deal with having debt. It stresses them out too much. What's the value of having no stress? Pretty priceless to some people. But if you are ok with the concept of having debt and one of your goals is to continue to purchase more properties then the choice might be to carry the note. While many investors don't get to having 9 or 10 properties the ones that do are cash flowing about $3000 per month and some even higher amounts. Some of those investors use that cash flow to pay down the mortgages that they carry at that point. Now they are using their investment money to pay down debt. It's also significantly easier to do owner financed transactions when you sell your property free and clear. There are lots of reasons to go either direction. Keep gathering information and make a decision that you feel comfortable with.

2 Reply

See this reply in the discussion

6 Replies

Jump to latestLatest

Sort by

Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
9y
The link you provided is a pretty thorough discussion of the financial and emotional cost of paying down the debt early vs investing excess cash elsewhere.
I will say that as someone that is still in the accumulation and wealth building phase, I aggressively invest and expect, through the combination of hard work, opportunity, and knowledge that I am trying to expose myself to that I can achieve substantially greater than 5-10% returns over the next decade. Therefore, I will not be paying off my notes early.
However, suppose that my portfolio swells to $2-5M in 5-10 years. I absolutely might at that time pay down the mortgages on my properties to have a little bit more peace of mind.
Podcast Guest on Show #223
1 Reply
Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
9y
@Meghan Chomut a lot of what you are asking is somewhat based on who you are and what you are trying to accomplish. I have customers who just simply can't deal with having debt. It stresses them out too much. What's the value of having no stress? Pretty priceless to some people. But if you are ok with the concept of having debt and one of your goals is to continue to purchase more properties then the choice might be to carry the note. While many investors don't get to having 9 or 10 properties the ones that do are cash flowing about $3000 per month and some even higher amounts. Some of those investors use that cash flow to pay down the mortgages that they carry at that point. Now they are using their investment money to pay down debt. It's also significantly easier to do owner financed transactions when you sell your property free and clear. There are lots of reasons to go either direction. Keep gathering information and make a decision that you feel comfortable with.
2 Reply
Meghan Chomut
OP
Investor · Thunder Bay, ON · Member since 2017 · 83 posts · 22 votes
9y
Thanks!
@Scott Trench - I really like the "phase of life" consideration, I'll put that in there for sure as a point of influence.
@Andrew Postell - you are totally right. The stress of debt is so different for everyone.
Appreciate it :)
0 Reply
Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
9y
I have always believed that people that are stressed by debt, investment income properties, are not cut out to be successful investors. They lack the confidence to succeed and as a result generate returns far below a acceptable level.
Once cash becomes locked into a property it is dead. Equity kills cash flow and turns a investment into a liability.
I understand fear of debt but do not understand why they bother to invest.
1 Reply
Tanya F.
Rental Property Investor · Madison, WI · Member since 2013 · 629 posts · 339 votes
9y
I agree, it depends on what stage of life you are at. I'd take it one step further than what @Scott Trench said, we are in our late 50's and are paying down loans so that two of our properties are paid off by the time we reach 65, and the other two by the time we reach 72.
0 Reply
Allen Fletcher
Investor · Colorado Springs, CO · Member since 2015 · 252 posts · 131 votes
9y
@Meghan Chomut
Paying off debt not only removes stressors from life it also frees up income for use in other ways. If you are paying $1,000/month on the mortgage and you pay off the mortgage you have now unlocked that $1,000/month for use in other areas. I am going to give you a third option that has not been mentioned yet, have you thought about using a portion of the cash to pay off a little of the mortgage so that you can refinance and unlock more of the monthly income?
@Thomas S., in my opinion, is a little off when he says that equity is dead. Equity in a property is not dead, it is just securely locked up. There are tools out there that will let you access that equity and at decent rates. Have you accounted for this in your calculations? Often equity loans can be used to capitalize on deals that will increase wealth and income and they also have the added bonus of being available quickly if necessary.
As everyone has stated above, there is no one size fits all answer it all depends on you, your needs, your fears, etc.
Good luck,
Allen Fletcher
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.