Pay down or invest??

3 Replies

So I have a property that cash flows 175 a month after mortgage, property manager, repairs, and vacancy. Should I make extra payments on the mortgage, or invest it in the stock market. I use Robinhood so I get commission free trading and I only invest in dividend paying companies who are well leveraged and not drowning in debt. Just looking for advice from someone a little more mature and experience than me. I don’t want to spend it lol and I know if I don’t give it a purpose it’ll be gone at the next gun show I go to or something.

Burying cash in a property is not investing, it is buying cash flow. This is the worst thing a "investor" can do with their money. You are not a investor if all you are doing is hoarding cash. Equity is where cash goes to die.

I guess it would depend on your stock market skills, but assuming you know how to invest properly... I'd just weigh your expected returns in the market vs your mortgage interest rate.

I've actually been tapping the HELOC equity to re-invest into the market which is an aggressive play but if I can beat the interest rate (3.75%), I'll be turning a profit by doing so. My eventual plan once I have enough capital raised for another downpayment would be to get another place and would only paydown the mortgage if the lenders say my debt to income ratio is too high.

Your strategy should depend on your risk tolerance - everyone will have a different limit for the amount of risk to reward they are willing to take on.

@Rousner Ermonfils , if you think you can get a higher return in the stock exchange than your current mortgage interest rate AND/OR you would like to access your money at some point, then investing in the stock market may make sense. Good luck trying to tap into your property equity, if you need the cash for any reason. You’ll have to either sell it or refi your loan, which you you will need to qualify again. 

Also, it depends on your investing strategy and where are you building your portfolio:

1. Still building your portfolio: I would not pay down principal. I will put the excess cash in a safe product (CD, Money Market account, etc.), so you don’t risk your funds and can access them when you find your next property. 

2. Already reach you portfolio goals: I will consider paying down principal to reduce risk and not lose all I’ve worked for, in case there is a dramatic shift in market conditions. 3. Somewhere in between, where you would like to keep investing in RE, but it is not your priority: Maybe here putting the excess cash into the stock market makes sense.

At the end, all the depends on your situation and goals. Good luck!

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