Building a Debt-Free Real Estate Portfolio—Looking for Long-Term Advic

[John Esteen]

Hello everyone,

My wife and I are working toward building a long-term real estate portfolio with a debt-free mindset. We currently own a duplex in Houston and have been making extra principal payments while also building our cash reserves.

Our next goal is to build a one-bedroom ADU on the property that we hope will generate approximately $1,000 per month in rental income.

Longer term, we’d like to continue acquiring rental properties, eventually invest in commercial real estate, and possibly develop or build our own homes. We are also interested in learning more about construction so we can reduce costs and better understand the building process.

My questions are:

1. If you were starting with our position today, what would you prioritize next?
2. Would you continue aggressively paying down the duplex before buying another property, or would you leverage equity sooner?
3. What mistakes should someone with a long-term, generational wealth mindset avoid?
4. What books, courses, or skills had the biggest impact on your success?

I appreciate any advice from those who have already walked this path. Thank you!

[Jaron Walling]

@John Esteen I would prioritize NOT making additional principle payments if you have low interest rate loans. We're conservative investors and recently stopped all additional principle that was going towards one of our properties with a 3.5% fix rate. I'm now allocating some CF (one extra payment per year) towards another rental with 6.2% rate. 

If you want to scale making additional payments is not going to help you. All you're doing is stashing cash (equity) into the asset but on paper it hurts your ROI. You're hitting the brake pedal on scaling or moving towards that ADU buildout. Unless you're wealthy from a 9-5 job (I'm not) it's not going to help you.

Conservation vs. risky aggressive growth. Evaluate what that looks like for your goals and realize paying down low fix rate debt is not the move. Depending on the asset class most investor focus on scaling, BRRRR deals, flipping, or they're already in the "harvester phase" and climbed the mountain. They are enjoying the view paying off higher interest rate debts, 1031 exchanging, or selling off problem properties.