Pay off rentals early OR Pay down Primary house?

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Pay off rentals early OR Pay down Primary house?

Brett Lee
Flipper/Rehabber · Member since 2018 · 102 posts · 103 votes

I have a duplex that I owe $135,000 on that currently generates me $1000 per month in passive income.  My primary house has a mortgage of $329,000.  I recently sold our old primary house and I have around $200,000.  I am trying to figure out if I should use some of the money to pay off the duplex and use the rest of the money to pay down our primary house.  

I realize there are tax benefits and deductions for rental houses.  However, it would be nice to bring in closer to $2000 per month in passive income.  If I brought that in as passive income I would plan on tax deferring as much as I can from my job (Teacher) to keep my overall taxes down and also get me in a better position for retirement.  I am 37 but really do not want to teach another 30 years... so any advice would be greatly appreciated. 

What are your thoughts?  Good idea?  Terrible idea?  Please let me know your thoughts.  

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y

Well the common wisdom and I am sure every other reply will be to use the 200k and go buy more rentals with max leverage..

At your age and as long as you want to continue to bring in income so you can qualify for loans borrowing money is most likely the best way to scale up.

As you get older like me you get debt adverse and I would be paying off all fixed debt as fast as I could.  But that's a very minority view on this site.

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  • Wayde C Hall
    Real Estate Agent · Orlando, FL · Member since 2018 · 31 posts · 6 votes
    7y

    @Nik Moushon

    Newbe here

    Could you not pay off the rental, then open a home equity line of credit and use the left over money at the same time that way you still have access to more $ than what you have left? Perhaps use one for multiple down payments and cash for rehab?

    0Reply
  • Nicholas ZaharevichPro Member
    Rental Property Investor · Spanaway, WA · Member since 2016 · 82 posts · 41 votes
    7y

    @Brett Palmer

    As you will see from many of the replies, it ultimately depends on your investment strategy. There is no right or wrong answer. Personally, my strategy is to pay down my personal home in order to eliminate/minimize my living expenses.

    However, there's a point at which I may convert my personal home to a rental and move again, since I can buy 0 down on a VA Home Loan.

    I just keep my options open, but I have no intentions to pay my rentals of before my personal home because someone else is doing that for me.

    [email protected]509-948-6213
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  • Christopher Hall
    Rental Property Investor · Pensacola, FL · Member since 2017 · 37 posts · 18 votes
    7y

    @Brett Palmer in the interest of simplicity since it seems that is where you are leaning, use the 200k and purchase another rental house outright. Then if the market did tank you are covered-ish. It sounds like your duplex has a good cushion, and you primary could be covered by your w2 if worst came to worst. Then you can make 1500+ a month for your new rental. Take that money and pay down your primary or the duplex. Likely in less than 7 years you could have two payed off rentals. If you are handling two tenants, 3-4 wouldn’t be that much change or hassle for you.

    The real estate tycoon wannabes will roll about opportunity cost but everyone doesn’t want to manage an insane number of houses. With two paid off rentals I presume you could double your teacher retirement.

    You could also keep 20k or so back as a safety net for vacancy, cap ex, etc. and feel like you are in a very good position financially.

    My two pennies worth, sincerely someone that would love to have this problem!

    2Reply
  • Rob Dahlager
    Rental Property Investor · Denver, CO · Member since 2019 · 5 posts · 3 votes
    7y

    @Brett Palmer ... I am a simple guy, so here is my take and I think is consistent with a couple of others.

    1. Put it all toward primary residence

    2. No-cost refi of primary residence

    3. HELOC for as much as you can get on the primary

    This does a few things for you:

    1. Lowers you primary residence payment significantly

    2. Puts you in a position to have the cash ready when you want to pounce - be an all cash, quick close buyer, which can lead to lower acquisition cost of future investments. Once purchased, refinance the new rental, pay down the HELOC and get ready for the next one.

    Good Luck!

    2Reply
  • Brett Lee
    OP
    Flipper/Rehabber · Member since 2018 · 102 posts · 103 votes
    7y

    @Sean McDonald

    4% on rentals? Definitely interested!!

    0Reply
  • Rick Imby
    Member since 2019 · 59 posts · 28 votes
    7y

    @Brett Palmer 

    So what did you do?  Buy a Lambo?

    1Reply
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