Pay off Morgage or buy more Rentals

40 Replies

Hope this question is where it supposed to be.

I have 8 propertys, 5 of which have loans.

All total they clear about $7000 a month.

I have a small side business and my wife is a killer realtor earning us an additional $150k.

Over the next 2-3 years I'm expecting to have up to 300k+  in available cash.

My question is, now that we've established our rental business. Should we go with the sure thing and simply pay off the Morgages (all are about $125k at 5% with 25 years to go) 

Or 

Start investing in stocks (most likely Vanguard total stock market fund) and other funds?

p.s. I'm not wanting to buy more rentals in this market. 

Thanks For Any Input,

Doug

Question is to pay off mortgages or buy more rentals?  If you're not wanting to buy more rentals as you stated, then you have your answer?  

Use half to pay down debt and stick the other half in either notes or the stock market

Originally posted by @Brandon Carriere :

Question is to pay off mortgages or buy more rentals?  If you're not wanting to buy more rentals as you stated, then you have your answer?  

 Yeah, that seems like a Freudian slip.

I guess it's pay off Morgages or invest in Funds

@Douglas Graves

Ha..  If you think you can make more than 5% then you're better off doing anything else.. Im not a fan of the market shorter term and would much rather have a few more houses on the books back in the midwest making cash flow.. You'll probably be able to get into your index funds much cheaper sometime soon

Originally posted by @Brandon Carriere :

@Douglas Graves

Ha..  If you think you can make more than 5% then you're better off doing anything else.. Im not a fan of the market shorter term and would much rather have a few more houses on the books back in the midwest making cash flow.. You'll probably be able to get into your index funds much cheaper sometime soon

 If my past is any indicator, the stock market will tank as soon as I get in.

Paying down the Morgage is a sure thing plus no fees.

Ive been itching to get out of the market, so message me if you decide to get in, that will be the clincher for me, haha..  

Paying down the mortgage has a fee in some sense..  It limits you to a 5% gain for all of that dead-ish money thats tied up there..  The fee would be, NOT capitalizing on the potential that money has..  Hard to say, lots of factors involved for each individual scenario

Congrats on having 3 paid-off rentals!  A rate of 5% is my minimum to accelerate, but only if a commercial mortgage that has much more hassle and risk than residential. 30yr fixed rate mortgages have to be closer to 6% before I punch them in the face.

I paid off a bunch last year, but they were all above 6%, except for 2 commercial at 5.75%. From an opportunity cost standpoint, I think 5% is easy to beat, but I get the peace of mind factor.

Neither decision is a dumb one. Pay off debt or invest? Smart and smart. Most people out in the world are just spending more than they make on stupid stuff. Kudos!

I'm not a fan of timing, but the market has been on a tear for a decade and the yield curve is a concern.  If you want something more passive and don't want to buy rentals, how about notes?

Originally posted by @James Mabe :

I'm not a fan of timing, but the market has been on a tear for a decade and the yield curve is a concern.  If you want something more passive and don't want to buy rentals, how about notes?

 The problem is, I don't know the 1st thing about investing.

I bought in the market twice before and lost most everything.

So I got feed up and bought something tangible, rental homes.

I'm assuming notes would have a low rate.?

@Douglas Graves have you considered real estate crowd funding?

If it is not your thing it would probably be best to pay off the properties to get extra cash flow.

Best of luck!

Congrats on your success.  Especially for someone that doesn't know the first thing about investing!  Jay Hinrichs is a pro on this site and there are many on BP that can teach you about note investing, I'm active myself and haven't investing in notes.  The fact that you bought into the market twice and lost everything should tell you something, you don't have any control.  Stick with BP and keep asking questions and someone will give you concrete direction.  

I think you need to create your end goal of what you want at the end of the rainbow 29-30 years from now. Once you have your goal then create the strategy to achieve the goal. Don’t just buy to buy. Either stock or real estate doesn’t matter. Just make sure it aligns with you goals

Originally posted by @Steve Rozenberg :

I think you need to create your end goal of what you want at the end of the rainbow 29-30 years from now. Once you have your goal then create the strategy to achieve the goal. Don’t just buy to buy. Either stock or real estate doesn’t matter. Just make sure it aligns with you goals

 I guess my goal is to be debt and stress free.

@Douglas Graves you can earn 8-10 percent with notes usually. If you’re accredited you can invest in a note fund. If you’re not you can buy individual notes

Originally posted by @Brandon Carriere :

Ive been itching to get out of the market, so message me if you decide to get in, that will be the clincher for me, haha..  

Paying down the mortgage has a fee in some sense..  It limits you to a 5% gain for all of that dead-ish money thats tied up there..  The fee would be, NOT capitalizing on the potential that money has..  Hard to say, lots of factors involved for each individual scenario

 don't forget, when you payoff the mortgage you no longer can deduct the mortgage interest as an expense and thus you increase your tax liability. return is going to be slightly less than 5%.

@Andrew Botcher

Yes, correct.. Which makes even more sense to NOT pay off the 5% mortgage loan(s) and to make more than that 5% somewhere else with that cash..  

I'm not educated enough in stocks, notes, funds, etc to trust myself and I Hate fees payed to managers.

The only fund I somewhat understand  is the Vanguard total stock. 

But it feels like a volatile time for stocks.

That's why I like rentals, the math is pretty simple and doesn't fluctuate much.

The mortgages are a good hedge against inflation.  Cash is king.  If I were in your shoes, I would keep the cash and wait for the next cycle in both real estate and the stock market.  I'm a fan of IVV - S&P500 ETF fund as far as funds go.

I prefer real estate bc I understand the dynamics at work better and have had way better success.

If the mortgages aren't bothering you, keep them.  

Do you want to grow your business?  Make it more turnkey?  Do you want to expand into short term or vacation rentals?  Condo in FL? (Hawaii for west coasters).  

If the bull market continues into August, it will be the longest bull market in history.

Real Estate has been going up the last 8 years.  The fed is indicating they will raise interest rates twice next year, causing loan interest rates to go up causing less sales in housing.  

Originally posted by @Derek Janssen :

The mortgages are a good hedge against inflation.  Cash is king.  If I were in your shoes, I would keep the cash and wait for the next cycle in both real estate and the stock market.  I'm a fan of IVV - S&P500 ETF fund as far as funds go.

I prefer real estate bc I understand the dynamics at work better and have had way better success.

If the mortgages aren't bothering you, keep them.  

Do you want to grow your business?  Make it more turnkey?  Do you want to expand into short term or vacation rentals?  Condo in FL? (Hawaii for west coasters).  

If the bull market continues into August, it will be the longest bull market in history.

Real Estate has been going up the last 8 years.  The fed is indicating they will raise interest rates twice next year, causing loan interest rates to go up causing less sales in housing.  

Saving the cash and buying more properties in the next down turn is an option.

I just don't like having cash sitting and not working.

 I like the idea of buying a commercial property or a 10-15 unit building. 

I have to look into those more. I'd think having cash to persue that plan would be a good thing.

Originally posted by @Douglas Graves :
Originally posted by @Derek Janssen:

The mortgages are a good hedge against inflation.  Cash is king.  If I were in your shoes, I would keep the cash and wait for the next cycle in both real estate and the stock market.  I'm a fan of IVV - S&P500 ETF fund as far as funds go.

I prefer real estate bc I understand the dynamics at work better and have had way better success.

If the mortgages aren't bothering you, keep them.  

Do you want to grow your business?  Make it more turnkey?  Do you want to expand into short term or vacation rentals?  Condo in FL? (Hawaii for west coasters).  

If the bull market continues into August, it will be the longest bull market in history.

Real Estate has been going up the last 8 years.  The fed is indicating they will raise interest rates twice next year, causing loan interest rates to go up causing less sales in housing.  

Saving the cash and buying more properties in the next down turn is an option.

I just don't like having cash sitting and not working.

 I like the idea of buying a commercial property or a 10-15 unit building. 

I have to look into those more. I'd think having cash to persue that plan would be a good thing.

 It's hard to be patient, but I was fortunate to have cash available 2008-2012 and was very happy with the outcome. That allowed me to refinance with cash out the last few years and expand my portfolio.  Multi family is a different beast than SFHs.

I've heard the sweet spot is >80 units so you can have full time staff - maintenance, on site manager, etc.  Otherwise I've heard it's death by 1000 paper cuts...

"All total they clear about $7000 a month.

I have a small side business and my wife is a killer realtor earning us an additional $150k.

Over the next 2-3 years I'm expecting to have up to 300k+ in available cash."

Congratulations!  I think you should be featured in the next podcast. 👍👍👍

Originally posted by @Ayne Cardona :

"All total they clear about $7000 a month.

I have a small side business and my wife is a killer realtor earning us an additional $150k.

Over the next 2-3 years I'm expecting to have up to 300k+ in available cash."

Congratulations!  I think you should be featured in the next podcast. 👍👍👍

 LoL, I don't know about that.

I'm just a guy who can add and subtract, that doesn't mind fixing leaky faucets.

Originally posted by @Douglas Graves :
Originally posted by @Derek Janssen:

The mortgages are a good hedge against inflation.  Cash is king.  If I were in your shoes, I would keep the cash and wait for the next cycle in both real estate and the stock market.  I'm a fan of IVV - S&P500 ETF fund as far as funds go.

I prefer real estate bc I understand the dynamics at work better and have had way better success.

If the mortgages aren't bothering you, keep them.  

Do you want to grow your business?  Make it more turnkey?  Do you want to expand into short term or vacation rentals?  Condo in FL? (Hawaii for west coasters).  

If the bull market continues into August, it will be the longest bull market in history.

Real Estate has been going up the last 8 years.  The fed is indicating they will raise interest rates twice next year, causing loan interest rates to go up causing less sales in housing.  

Saving the cash and buying more properties in the next down turn is an option.

I just don't like having cash sitting and not working.

 I like the idea of buying a commercial property or a 10-15 unit building. 

I have to look into those more. I'd think having cash to persue that plan would be a good thing.

Be careful to monitor your effort/reward ratio.  Sure, you CAN earn more than 5%, but at what effort expense and risk?  I for one have no interest in  starting from scratch on the learning curve into a completely different sector like notes, but thats just me and I'm more at the sunset of my career cycle than the dawn.

I can tell you from experience that it doesn't get more passive than debt-free on the 19 I paid off. I would need at least 30 more tenants to equal the cashflow I now keep.  When I pay off the balance of my portfolio and primary in 9 years, cf will increase another 50% with no additional work.  

I'm still buying, but with cash.  Buying non-bankable houses or 'odd' commercial type assets with minimal competition.  Diversifying into business non-RE related as well to keep things interesting and give back.

The tax savings argument to keep the mortgages is bunk.  Send me $10k and I'll return $3500 to you any day of the week. And that's being generous on my part!

Originally posted by @Steve Vaughan :
Originally posted by @Douglas Graves:
Originally posted by @Derek Janssen:

The mortgages are a good hedge against inflation.  Cash is king.  If I were in your shoes, I would keep the cash and wait for the next cycle in both real estate and the stock market.  I'm a fan of IVV - S&P500 ETF fund as far as funds go.

I prefer real estate bc I understand the dynamics at work better and have had way better success.

If the mortgages aren't bothering you, keep them.  

Do you want to grow your business?  Make it more turnkey?  Do you want to expand into short term or vacation rentals?  Condo in FL? (Hawaii for west coasters).  

If the bull market continues into August, it will be the longest bull market in history.

Real Estate has been going up the last 8 years.  The fed is indicating they will raise interest rates twice next year, causing loan interest rates to go up causing less sales in housing.  

Saving the cash and buying more properties in the next down turn is an option.

I just don't like having cash sitting and not working.

 I like the idea of buying a commercial property or a 10-15 unit building. 

I have to look into those more. I'd think having cash to persue that plan would be a good thing.

Be careful to monitor your effort/reward ratio.  Sure, you CAN earn more than 5%, but at what effort expense and risk?  I for one have no interest in  starting from scratch on the learning curve into a completely different sector like notes, but thats just me and I'm at more of the sunset of my career cycle than the dawn.

I can tell you from experience that it doesn't get more passive than debt-free on the 19 I paid off. I would need at least 30 more tenants to equal the cashflow I now keep.  When I pay off the balance of my portfolio and primary in 9 years, cf will increase another 50% with no additional work.  

I'm still buying, but with cash.  Buying non-bankable houses or 'odd' commercial type assets with minimal competition.  Diversifying into business non-RE related as well to keep things interesting and give back.

The tax savings argument to keep the mortgages is bunk.  Send me $10k and I'll return $3500 to you any day of the week. And that's being generous on my part!

 This is what I'm thinking! 

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