Which would you pay down?

Question

Currently own investment wise a duplex and a SFH, thinking about paying extra on one of the loans to pay it down faster. Curious which others would go after first? I'm thinking the SFH as that would likely appreciate faster correct? Which would in turn help out with getting things like a line of credit on it for further investing quicker

Thanks in advance for any and all help

Cory Lucas · Answer

@Cole Bennett appreciate the insight and the link to the calculator

Cole Bennett · Answer

Others have given great advice already. You might get more clarity if you work with a "debt snowball calculator". They are great at illustrating where your money goes and what affect it has when you allocate some extra payments to this or that debt. All other factors being equal, it's best to pay off the highest interest rate first. But many of these comments show how those factors are rarely equal. This is a good calculator that you can download and do anything with, so you're not limited to inputing via a webpage. https://www.vertex42.com/Calcu...

David M. · Answer

@Cory Lucas

Just brainstorming...  If you really wanted to, I'd say the shorter mortgage should be paid down first..  The faster its gone, the faster you can cashout refi / hloc is.  the 75% pullout sort of doesn't matter since your original principal would be stuck there anyway --- its an accounting notion to me...  But again, its up to you and your goals.  If taking say 5 years (instead of probably just 6 or 7 years) to pay off that mortgage is okay to you, then okay...  Good luck.

Cory Lucas · Answer

@Nathan G. Always appreciate your insight! That’s pretty well what I’m doing at this point, but just thought if I did put extra money towards one or the other, which one might be best was all. Thanks for the feedback

Nathan Gesner · Answer

If you make extra payments on an existing mortgage, you'll still only be able to borrow 75% of that equity. If the property is cash flowing, you'd be better off leaving it as it is and using your extra cash to save for the next purchase.

Cory Lucas · Answer

@David M. Cool! Thanks for the feedback

Cory Lucas · Answer

@David M. I definitely don’t disagree and I appreciate the feedback. That’s pretty well my mentality at the moment, stockpile the cash.

It was more a question to see what others might do and/or if one made more sense to pay down than the other really

David M. · Answer

@Cory Lucas

So... basically, you are saving/'socking away' no more than $12k to $6k a year --- in equity...  Is that how much you are short for you next deal?

Even if you try to get your equity out on a hloc, you are not going to get 100% as I understand (have n't done one in years).  So, if your main goal is to save up for another investment, I would keep the cash and maintain the leverage on your existing rentals.

The only tax consequence that comes to mind would be if you cared about deducting less interest payments since you would be having less..  Also, you are decreasing your leverage, which has both investment/return consequences and tax consequences.

But, if your goal is to build up cash for your next deal, build up your cash...  Just my two cents.

Good luck.

Cory Lucas · Answer

@David M. Both have the same interest rate, duplex is further along than the SFH

Paying it down faster to of course eliminate the debt and payment, but main goal yes would be to do a HELOC.

I’m just toying with the idea at the moment, been searching the last few months for another property and keep coming up short, so I was thinking on something else I could be doing to help my situation was all while the search continues.

Hadn’t really considered tax implications at the moment.

Extra wise, I could feasibly do an extra $1,000/month, but was thinking $500

Thanks for weighing in

David M. · Answer

@Cory Lucas

Lots of factors... which has the higher interest rate? Is one much further along than the other?  What’s your goal for paying it down faster — just to have a hloc?  Do you need to consider anything for your taxes — minor detail? How much are you really talking about in terms of paying extra?

These are somewhat rhetorical questions.  Mainly, it depends on your goal...

Good luck.

Which would you pay down?

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