Pay It Off vs Keep the Loan

7 Replies

I am just beginning to invest and through discussion with friends there's always the talk of "having to pay it off ASAP".  I was wondering thoughts from BP People.  Is it better to keep the debt as long as someone is paying it? Or should we pay them off "ASAP"??

Thanks and I hope everyone is having in incredible investing journey!

If you are growing your portfolio it is my opinion to funnel your cash towards expansion. With the cost of one payoff you could purchase 2 or 3 more units and increase cash flow as well as equity. When you build up the number of units closer to your goal, you can start paying them down.

Hey @Keith Carey

If you have a property that is from a lender and the property is creating income for you, don't call it debt, you should call it leverage. This leverage will be able to help you pursue your financial goals.

As far as paying it off ASAP or the longer way, on your beginnings of REI, I would try to buy as many properties you are comfortable with. This will gain you invaluable experience of the process and numbers while diversifying your portfolio.

It depends, it always depends. What are your goals with not just the property but your REI in general?

Like @Joe C. said if you are planning on expanding your portfolio than having cash on hand to buy more properties is more important than paying off debt, “leveraged asset”.

Maybe you have a low tolerance for risk or don’t like to have any debt, if that’s the case, slow and steady and pay off the property and move on to the next one when you are comfortable.  

     I’ve learned very quickly there is no actual wrong answer to this question, because each person asking the question is completely different experiences and desires.

I have in the past paid cash for my rentals. I now think that was a mistake. I have good income from The seven units I have but will fall short of my goal but I still can buy after I retire next year.  The big thing is the cash flow and with rates as low as They have been it would have been better to use a mortgage and let the tenants pay for the houses and concentrate on cash flow and equity.  My plan now is to buy with mortgage rent and rehab along the way and sell in five years. Turning over one mortgaged house per year. I am starting that process now.  The big plus is that I won’t get too bored in retirement lol. 

@Keith Carey in general carrying less debt in a business or personal life is beneficial. You don't find many business owners saying, "I wish I had larger payments each month". 

Debt has a purpose when used as leverage. It allows you to scale faster and achieve a better return on investment. In other words your dollars multiply faster.

Whether or not you should pay it off fast depends business goals, risk tolerance, interest rate and how you would use the money if you didn't pay off.

Two thoughts come to mind when getting advice from friends. First of all, what is their experience (do they own rentals or run businesses)? Second thing is why are they giving this advice? That is a good question to ask when anyone makes a statement. You will find very often people just say things without even knowing or having reasoning behind their statement. That is because most people are repeating things they heard somewhere else.

Thank you, everyone! @Conn Gerrard, @Joe C., @Fred Cannon, @Theresa Harris, @Joe Splitrock

I think the "leveraged asset" is definitely the way to look at it. Then the level of comfort.  @Joe Splitrock, My friend is looking for her second home and feels she has to pay her first one off first.  I feel that is her level of comfort.  I feel like if the asset is leveraged correctly and can be "self-sustaining" (I'm sure that's not a term), then you can move on to the next one.  

I just purchased my second deal, today, in Detroit, and I'd like to grow as quickly and safely as I can.  I'm definitely getting into the game later in life but so no other way to go unless I plan on working past my sun-setting years.  

I love these forums!