Pay off my house or wait and refinance?

Question

I’m buying my first home for 80,000 In a neighborhood that could appraise at 140,000. I got very lucky with this deal. My question is should I treat my 30 yr mortgage like a 15 and try to pay off the house as soon as possible or should I relax & pay my normal mortgage save that extra cash and still refinance 5 years later?

Will Fraser · Answer

Hi @David Pena Jr, welcome to the BiggerPockets forums!

The real answer to this is going to come down to:  what are your personal goals for real estate investing and life, and which path will best lead to those?

For my money, I want to pay as little extra towards very cheap debt as possible.  So, if I'm looking at debt under 4% I'm going to put $0 additional money towards that loan.  Every dollar I put there is a guaranteed 4% rate of return, or 3%, or 2.75% . . . whatever the interest rate is.  I don't like that rate of return at all, and I don't feel it's wise to trade liquidity for a low rate of return.

That said, IF my goals were aligned with owning my properties free-and-clear more quickly then even with the interest rates being low I'd look to pay off the properties sooner.  So, back to that old "ism":  Know Thyself.

Kathy Henley · Answer

@David Pena Jr Let your tenants pay down the mortgage and have reserve funds for refreshing the unit and for needed future repairs and maintenance. Enjoy the offsetting your personal income with the expenses of the property and, the depreciation expense. Use your the remaining portion of your disposable income for your next investment property.

You can refinance when the numbers make sense.

David Zeek · Answer

Hey David,

Welcome to BP. I think you should pay your normal payments and save the extra for the right investment. If the home appraises that well (140k), you can probably do a cash-out refinance 6-12 months after owning the property.

Most forums that I have read on BP are all about leveraging other people's money, without using your own capitol. If you have a lot of equity in a home from using your own capitol, the cash is sitting and not working for you. In other words, you do not have the liquid cash to use for time-sensitive deals.

My two-cents, though I am very new to the game.

-Dave

Steve Morris · Answer

"In a neighborhood that could appraise at 140,000"

Well, get an appraisal since you could be wrong.  Appraiser will see you paid $80K and take that into account.

If it does appraise and you want to continue investing, if you can borrow money at 3% and then use it (ie leave it in your pocket instead of the house) and make 10%, why not.

David Pena Jr · Answer

Hi @Will Fraser thank you so much for your feedback!

It’s much appreciated. My goals for real estate would be to own as much property as possible without using any of my own cash for investment purposes. My thought was to pay off my mortgage normally, save the extra cash I’d have for a later investment, and still refinance the house sometime down the road, get cash out of the property then rent the property out to pay off the new debt I just created from the refinance.

I thought, why put money into the property if I plan to refinance later and still owe again on the property.

But the only thing is I was told the bank would deduct

any money that I owe on the deal when I try to refinance. So if I still owed $70,000 on the property & the day comes when I refinance I get a 70% LTV of 160k, (hoping the property appraised well in a couple of years) ,of those 112k (70%) will the bank deduct the $70k that I still owe and leave me with $42k? I was told this would happen but I’m not 100% sure if this is true. I live in Texas by the way if that plays a factor. Thank you so much in advance!

Pay off my house or wait and refinance?

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