Pros/Cons to paying off rental property early

[Chris Meunier]

Hi Everyone! I have a rental property with the following details:

• 210k loan balance 
• $2500/month rent
• $6000/yr in income after PITI and costs today

If I pay off the remaining balance on the loan, I will have over 10% cash on cash return which sounds amazing. It is already cash flow positive today, around ~$600/month. My overall investment goals right now are to create passive income, so this would fit in with that. Is there anything I am missing with my considerations? Of course there is the option to invest the 210k in other real estate opportunities, but I may be hard-pressed to find something above 10% return. Thanks in advance for your thoughts.

[Joe Villeneuve]

Originally posted by @Chris Meunier:

Hi Everyone! I have a rental property with the following details:

• 210k loan balance 
• $2500/month rent
• $6000/yr in income after PITI and costs today

If I pay off the remaining balance on the loan, I will have over 10% cash on cash return which sounds amazing. It is already cash flow positive today, around ~$600/month. My overall investment goals right now are to create passive income, so this would fit in with that. Is there anything I am missing with my considerations? Of course there is the option to invest the 210k in other real estate opportunities, but I may be hard-pressed to find something above 10% return. Thanks in advance for your thoughts.

 If you pay off your mortgage, with cash I assume, you are not getting 10% CoCR.  If you pay off the mortgage (a - $210k) and only make  $6k CF + what ever the original mortgage payment was (I'm guessing a bout $15k/year), that gives you a return of only $21k...and an outgo of $210k.  That's a net negative CoCR of 90%.

Right now you have the tenant paying off your mortgage for you, with an extra $6000/year in income.  Why in the world would you go backwards $210k?  Invest that $210k in something that will also let the tenant pay you money to live there.