Rental Acquisition OofO - Pay in full or take mult mortgage?

Rental Acquisition OofO - Pay in full or take mult mortgage?

Member since 2019 · 1 post · 0 votes

^ that's order of operations in case no one knew what I was going for ^

I'm looking for some advice from those of you who have multiple rental properties. Thanks in advance~

We bought our first rental condo in full last year using our savings and a family gift (yes, fortunate us). Since then I've been getting a feel for the ins and outs of mgmt as well as how to determine a reliable roi when looking for additional units. 

Just this month we closed on a second comparable condo, with 20% down to avoid mortgage insurance.

Here's my big question:

Should we now pay our future savings toward paying down the remaining 80% asap, or should I continue on toward a third condo with another 20% down, immediately renting it out and covering the mortgage payment, so on so forth... 

In the end I'm aiming to continue this game for the long haul, not interested in selling, only acquiring. 

Factors I'm aware of that might help determine the most efficient answer:

-tax writeoff of interest portion of mortgage payment (most impactful during early years of mortgage) 

-margin of net rental income after all expenses 

-ability to qualify for attractive interest rates on additional mortgages

Basically I'm just trying to get the most bang for my buck. If I take several mortgages out simultaneously, I'll be bringing in small net margin for each property earlier than if I'm waiting to pay in full, but I'd like to hear from others whether the extra work dealing with the loans and mgmt of everything is worth it. Thanks

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  • Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    @Josh Merrell only you can decide how much debt you are comfortable with. The answer is personal and depends on your risk tolerance, goals, job stability, income, reserves, savings rate, overall financial picture, liquidity, etc. Just remember, debt is a two edged sword. One should always be careful when handling a sword. You will find plenty of people on opposite ends of the spectrum and everything in between.   

  • Member since 2016 · 13k+ posts · 12k+ votes
    7y

    Cash should be earning a minimum 10% return for investors. Paying down a mortgage is earning only the return you save in interest, maybe 4-5% at most.

    If you want to determine if paying down a rental income property is advantageous deduct $833 for every 100K in equity off of your monthly rent every month before any other deductions. What remains is what the property is actually earning (less all other expenses). If you intend to grow your investments you must force your money to earn it's keep and let your tenants pay the mortgage.

    Additionally equity is always at risk in the event of a market down turn where as a leveraged property that does go upside down will still be making positive cash flow.  For long term hold investors hoarding cash in real estate makes little scenes. 

    Leverage increases ROI, equity eats your cash flow assuming you place any value at all on your money. You work hard for your money, it now needs to earn it's keep. The need to hoarding is a mental illness.

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