Cash flow tips? To use or not to use.

[Nadir M.]

Good morning everyone,

I recently closed on my first rental property and UC on a second. The first property rented out quickly (cash flowing around $275)and I’m hoping to make roughly $250-$300 per month on the second rental property. Does anyone have a recommendation on whether to use cash flow to pay off the mortgage quicker or save for unknown future expenses?

Thank you,

[Andrew B.]

This depends on your strategy. From an investment standpoint, equity in a property reduces the return on your investment. Mortgage paydown's only "return on investment" is your interest rate. If your mortgage is 4% and you add $1000, you only get a 4% return. You can do much better elsewhere.

Now, if you have no intention of considering yourself a "Real Estate Investor" and you only purchase one property for diversification purposes, then paying it down might make you feel better and sleep better. If that's the case, go for it, but realize you are reducing your return. I would only do this if you have excess reserves and are comfortable paying for any issues that pop up.

Hands down, if you are trying to maximize return, don't paydown mortgage.