I purchased all of my properties on 30 year fixed mortgages (no pre-pay penalty). I've read in many places in the BP forums and elsewhere that I should now aggressively attack the debt I carry with prepayments (debt snowball is commonly recommended).
The idea of owning my properties free and clear appeals to me (I don't like making mortgage payments, especially the interest portion thereof). However, when I run the numbers, it works out to a mediocre return on my investment.
I carry an average $55K balance on my places and pay an average $320 in p+i each month.
Paying $55K to save $320 a month makes ~ 7%. ($320 per month x 12 months) = $3840 savings per year / $55,000 investment = .0698. Besides, I'll lose the tax write-off of mortgage interest.
I can beat that over time in the stock market. Wouldn't it make more sense to take all money I can from rental income and just put it in the S&P500, or reinvest elsewhere leveraged? I keep a cash cushion that (I think) is adequate for emergencies. The voice in my head tells me "when you disagree with the majority of people, you're usually missing something"...
Agree that financial downturn is likely imminent. Wife and I reason that we should be using funds to pay down houses now, but when the fall comes, we should switch and start buying shares of an index.
We don't see much value in the current market.
Do you own your primary residence? If not then I would focus on that rather than leveraging for cash flow.
@Geoffrey S. This really is a personal thing that you and your wife need to figure out on your own. More leverage equals more risk, less risk equals more stability. I used to be the type that used maximum leverage until I learned some lessons the hard way. I use a lot less leverage and take on equity partners. I sleep better at night. Some people don't like any debt and I used to scoff at the idea. I completely respect it now.
Personally, I'd like to one day completely pay down the mortgage on my personal residence. No HELOCS for me. For investments, our Funds are 100% equity but we are open to getting HMLs for REOs but only for the minimum amount for repairs. For rentals, I'm comfortable with 50-70% LTV