Pay off mortgage or buy a property?

Question

I'm being gifted $150K, should I pay off my mortgage (owe $175K) or buy a $150K house cash?

Andrew Syrios · Answer

You could loan the money to me... just an idea...

I would need more info to feel comfortable with a recommendation, but I usually lean toward buying more. The biggest advantage to real estate is the ability to use leverage and still protect yourself by getting a good deal (which you can't do very much in the stock market). I mean, you may even want to get some loans and buy a few houses with that $150K.

Alejandra Creech · Answer

Thanks for the excellent replies. It sounds like most would invest in property. @Micheal Rogers we have a 30 year fixed with 3.5% rate so you bring up a great point that maybe giving that up isn't a good idea. My original thought was to buy a $150K house cash, rent it out and use that income to pay my mortgage. But doesn't sound like anyone would do that? Im not currently an investor nor do I own properties (I became a real estate agent this year) and it makes me a little nervous to become a landlord but my husband is a police officer...

@Angel Rosado mentioned investing in a great deal, what cash flow is considered a "great deal?"

Hai G. · Answer

As others have said, it depends on your goal.  Personally I would buy more if you have the means to get a conventional mortgage.  I'm of the camp that interest rate today is as low as it gets,  and locking myself in with a cheap loan is worth it over the long term (I'm a buy and hold type).

Mike Carino · Answer

why not leverage 150k and buy 5? Its all in your perception as an investor and your goals

Clayton Sneider · Answer

Assuming you have a low interest rate on your mortgage, and assuming that you want to purchase rentals, then use the money as down payments on several other cash flowing properties. Why pay off a mortgage that is only costing you say 5%, when you can invest that money and earn maybe 20% on it. I also would feel more secure with a mortgage and $150K in the bank, than with no mortgage, but no money.

I understand the desire to be mortgage free, but it makes more sense to me to borrow as much money as I can at low interest and use that leverage to purchase cash flowing properties.

Pete T. · Answer

it depends on your goals, but I would use the money to purchase multiple properties.  I don't see any benefit of a partial payment and would only pay it off if I was already grown to the point I want to be at.

Angel Rosado · Answer

I mean who says you cant split the different pay half on the mortgage which would provide the security mentioned by @Jonathan Wilks and then use the remaining amount to invest in a few properties (but only great deals i.e. 1 in 100)

Michael Rogers · Answer

What are the terms of your current mortgage?  If it is a 30 year fixed rate mortgage at a low rate I wouldn't pay it off.

You might consider setting the $150k aside in a cash account and use the money for down payments on several rental property purchases.  Most portfolio lenders will lend you 80% of purchase pricing.  This means you need to come up with a down payment of 20%.  That means you can buy $750k of real estate ($750,000 x 20%).

Pay off mortgage or buy a property?

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