The decision to scale or pay off debt

[Ryan Spath]

When I first started investing in real estate, my goal was simple: 10 doors producing $500 a month each, or $5,000 a month in passive income. My wife and I planned to save, not trade up. The idea was to put 20 percent down, move into a new primary residence, and turn the previous home into a rental. As long as our financial position stayed the same or improved, we would rinse and repeat. That was it. The goal was clean and simple.

Along the way, life happened. We moved across the country, bought a few small multifamily properties, completed a BRRRR, and then moved back across the country. Each move got harder. We had more responsibilities, more considerations, and eventually two small children. Every decision carried more weight.

Fast forward to today. We delayed gratification for about 10 years and recently moved into a larger home that we intentionally chose in an area where we want to raise our kids. Throughout that time, we did our best not to upgrade our lifestyle and to live well below our means, something we still do. I drove a 2008 Acura TL until recently upgrading to a two-year-old truck, and only because the car was starting to cost more to maintain than it was worth.

In a recent conversation with a mentor, I was challenged to consider paying off my primary residence. My initial reaction was that this was crazy. Real estate is all about leverage, right? The more I sat with the idea, the more it started to make sense for me and my family.

So this is the plan. I intend to pay off our primary residence within the next three years. By September 27, 2028, my 45th birthday, I want our home paid off free and clear. Making this decision has forced me to realign some goals, but it also brought clarity.

Paying off our primary residence accomplishes a few important things for our family. It ensures that if something were to happen to me, my children would be able to grow up in the home my wife and I intentionally chose for them. It frees up cash flow. We are financially free through our real estate, and our housing costs currently consume roughly 30 percent of that cash flow. Eliminating that expense increases our annual cash flow by about 30 percent. It also meaningfully de-levers our balance sheet. As I’ve gotten older, I’ve cared more about resilience and less about maximum leverage. Once the primary is paid off, we’ll be leveraged less across our entire portfolio.

This strategy won’t be right for everyone, and that’s okay. Our goal was never hundreds of doors. It was 10 doors and $5,000 a month. We’ve surpassed both. At this stage, we want a small portfolio that serves us and that we can keep a close eye on. Could that change in the future? Absolutely. Life has required us to adapt before, and it likely will again. For now, the focus is on building a moat around what we’ve already built and reassessing once that foundation is even stronger.

Curious how others’ goals have changed over the years.

[Jules Aton]

You sound smart, thoughtful and with the wisdom we gain as we age. Living below your means while adding to the pot is a fantastic strategy but as you found that changes over time. Here is my 20/20 hindsight from doing what you are planning. I lived in dumps in great neighborhoods that I renovated, rented or resold in an effort to build equity and a little cash flow. This was back when interest rates were around the 5s. I ended up with a handful of rental properties and two primary residences due to where spouse and I were working. We paid off our places by the time we were 40yo then began adding extra money to the highest interest rental mortgage and VTSAX. Long story longer while it all works out in the end and I am fortunate to have a high paying W2 job my 60yo self wishes I had held the primary mortgages and added more to VTXAX which has increased 441.33% since inception. The biggies for me are liquidity and likely higher anticipated returns of money in the market vs RE appreciation.