Windsor, CA (windsor) · Member since 2018 · 21 posts · 6 votes
Hey BP! I always here of having a negative cash flow is bad. But I have an example for you.
What if you buy a single family home when the market crashes for $120,000. You put 20% down. Your mortgage interest is 5% and your term is 5years. So this would be a $2000 mortgage payment a month. Say you rent out the house for $1000 a month and pay the other half yourself to pay off the house in 5years. Is this a good or bad idea?
Architect · Wenatchee, WA · Member since 2018 · 843 posts · 907 votes
8y
Theres is plenty of pros and cons to paying off a mortgage faster. They way you are describing is a bad idea. If you are willing to shell out an extra $1k/month to pay it off in 5 years just save the money and put a larger down payment down to lower the payment. Or just save and buy cash. A 5 year mortgage is not worth it. 10-15 year minimum. IMO.
I will say I am one that sides with paying off a mortgage eventually and not keep refi over and over again at a max amount possible. Refi for maybe 30-50% is ok IMO
Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
8y
Hi Steven, you are describing a "money pit" with all the negative conotations included! Rentals are the basis to quit the day job how can you do that at negative cash flow.
Paying off the mortgage is a bad idea when in the early days of building a portfolio. Study here in detail the BRRR(and R) system. You need max positive cash flow that you pour onto the next purchase's down payment (rinse and repeat).
I quit my day job from buying rentals... I NEVER understood the math behind paying off a mortgage at 5% when I can make 12% cap rate, or 16% when including appreciation (or more) by buying another rental. BTW appreciation makes you a fortune when acting on a lot of rentals (all with max LTV IE max debt). Real estate beats the stock market by 3x only when at max LTV (debt). Paid off rentals perform poorly when comparied to truely hands off stock market (10%).
Architect · Wenatchee, WA · Member since 2018 · 843 posts · 907 votes
8y
Theres is plenty of pros and cons to paying off a mortgage faster. They way you are describing is a bad idea. If you are willing to shell out an extra $1k/month to pay it off in 5 years just save the money and put a larger down payment down to lower the payment. Or just save and buy cash. A 5 year mortgage is not worth it. 10-15 year minimum. IMO.
I will say I am one that sides with paying off a mortgage eventually and not keep refi over and over again at a max amount possible. Refi for maybe 30-50% is ok IMO
Investor · Arlington, VA · Member since 2012 · 1k+ posts · 491 votes
8y
Don't trap yourself with a 5 year term. Get a 30 year and pay it off early if you so desire. Regarding whether it's a good play depends largely on your goals. If you are trying to scale, then no. If you are trying to minimize risk, then yes.
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
8y
I agree with the others about the 5 year amortization. If you are using a convebtional mortgage product then use it to the fullest by taking as long of an amortization as possible.