What would you do?

Question

Hey everybody. I own 8 rentals in the midwest. I've got a few properties that would really benefit from updated heating/cooling systems. 1 duplex I have has electric baseboard heat / window AC (Old 1880s property, no crawlspace or basement, no existing ductwork), another I'd like to add central air too, and a 3rd that has old gas wall furnaces / window AC that I would replace with mini splits (again no ductwork).

My question is, let's say these upgrades cost 25k. I would plan on putting the cost of these improvements on a loan, monthly payment would be 1% of the balance so $250.00 a month. If I negotiated rental increases between the 3 properties (6 tenants) that matched or exceeded the $250, would you aggressively pay off the loan, or would you make the minimum payment using their money instead of paying it off with yours? One thing to consider is I am not interested in purchasing anymore buildings, I am "retired" as far as adding more doors to my portfolio.

Scott Nachitilo · Answer

Since you’re done expanding your portfolio and the rent increases fully cover the loan payment, I’d make only the minimum payments and let tenants effectively fund the upgrades. That $250/month is their money, not yours, so preserve your cash flow. With interest likely tax-deductible and your focus shifted to long-term stability, there’s no rush to pay it off. Aggressively paying the loan would tie up your capital in a low-return "investment" (paying interest you’ve already hedged via rents). Instead, keep that cash liquid for unexpected repairs or opportunities. The mini-splits will boost tenant retention and property value anyway, so enjoy the passive income while the loan slowly amortizes.

John Morgan · Answer

@Dean Klein

I’d just pay it off if you don’t need the money to scale up or whatever.

Dean Klein · Answer

@Scott Nachitilo That's exactly what I was thinking myself. I really appreciate you taking the time to help confirm that I was not missing something.

Dean Klein · Answer

Anybody?