Pay off buy and holds or let the tenants pay?

[Kimberly Garrido]

Here's a question I can't seem to answer myself as I'm deciding how I want to go about things. For example a unit payed off could CF at 1000 per month which would be worth 5 units CF at 200 per month BUT if you pay the one unit off you are technically spending some of your own capital that could be reinvested to gain more units. So what's better? Aggressively paying off your units so you are taking more cash flow or reinvesting and gain more units and getting more cash flow that way? Maybe I'm missing a perspective here. Would love to hear what you guys think.

[Michael Seeker]

@Kimberly Garrido - what's better will depend on the current interest rate environment and your personal goals.  If you want to continue growing, then having cash available to do so will be more important than paying down loans quickly.  If you have 10 units that could generate $1000/mo each and your goal is to have $10K/mo in income so you can retire...then it might make sense to start paying the loans down aggressively.

Having fewer units paid off will result in much higher cashflow per time spent.  But leveraging allows you to purchase more property and grow more quickly while somebody else pays off your debt.

If you are in a situation where your interest rate exceeds your CAP rate (very unlikely unless you bought with hard money loan and cannot refinance) then you'd be much better off paying down debt than buying more property.