New investor, pay your mortgage or start investing?

14 Replies

Hello all, 

I am new to this community, and I want to ask the more experienced investor out there, I am a new investor, I want to start with a duplex/fourplex but wondering if is better to payoff my mortgage before start the real estate investment journey? also would love to network, really looking forward to learn and contribute to this community!

What is your mortgage interest rate? if its high, can you refinance? Debt is cheap now. So if your mortgage rate is 3% and you can invest your money instead and make 10% CoC with a rental property, i suggest you invest.

It really depends on your risk tolerance. Some people get really uneasy when they have large amounts of debt. However, if your tenants are paying the bills and your property is appreciating...money is not going to be getting any cheaper. Heck, in many cases you can get an interest rate lower than inflation- personally, I'd leverage like crazy. 

I faced the same situation at one time. I invested because the returns were higher than my mortgage. I eventually paid off my mortgage and put a nice amount of cash in the bank when I sold my home, taking advantage of many years of appreciation.

Originally posted by @Joseph Vu :

What is your mortgage interest rate? if its high, can you refinance? Debt is cheap now. So if your mortgage rate is 3% and you can invest your money instead and make 10% CoC with a rental property, i suggest you invest.

 that makes sense, need to find that deal!

@Norma Contreras  One thing that you can do is get a HELOC that doesn't charge any closing costs. Then when the deal does arrive you can pull the trigger and make a higher return on your money. However having the peace of mind with a home paid off is priceless but the more you hammer your mortgage down the more money in your HELOC will be available when you do ultimately close on it. I consider any extra money I put towards my mortgage a "risk free investment" because it is guaranteed to give me a small return on the interest I no longer have to pay on that chunk of money and will be higher than current bond prices.

Oftentimes people will say to invest and take the higher return, but in this case if you don't owe that much on your home you can actually make MORE money in terms of cashflow by paying it off.

Example - I owe about 70k left on my home. If I pay it off I immediately get 900 / m cash flow from principal and interest no longer going out the door. I'm not sure of any investment that for 280,000 that would make guaranteed 900 a month in cash flow. However, despite of this fact, I personally invested strong this year and opted to not pay out my primary residence for higher returns than the 3% interest after tax. Though from a cash flow perspective it is constantly on my mind and certainly I will pay off my primary eventually and have a HELOC open to fund any deals that come around.

During the accumulation / expansion stage, I utilized all the reasonable long term, low fixed rate mortgages I could. 

Over time you'll have time to pay off debt.  We just paid off another mortgage, our primary. Yeah! Now we are getting a large Heloc for future opportunities. Access to fast, inexpensive capital is the name of the game. 

Early on having all house and no cash can actually be higher risk. Invest, but don't over-pay 👍

Your equity is not making you money, it is just money that you can't do anything with until you sell. Getting an equity loan on the amount of equity you currently hold will allow you to get you investment faster and have your tenant's pay that investments mortgage and equity loan.  Hourly wage and yearly salary pays you what a company thinks your time is worth for an hour or for a year. Keep in mind passive money pays you and your bills while you do minimal. The sooner you invest the sooner your time is being paid by tenants. Get your first one under your belt and then get ready for the excitement to get another. This will allow you to continue the purchase power and build wealth faster.  Get into good habits now like getting a good tracking database of your rental debt & income. You will need it to show banks in the future that you are a professional and if you ever sell a property it will be good to show future buyers of your unit.  I place mine using a PM.  I called around to PM's like I was looking for a rental. I wanted to see how they treated future tenants. What are their systems for rental payment and maintenance, I looked for reviews from owners and renters. If I saw that tenants were upset for them not being approved or evicted, that made me feel good that they didn't play around and that PM would take care of my investment. If they had bad review of not fixing or addressing concerns then they were not the PM for me. I want happy tenants. Happy tenants stay in your unit for longer terms. Less fees to pay a PM later. Also use your negotiation skills with PM's you can try to bring down their fees and get discounts for the more units you have in the future. They will want your book of business. -  Love the set it and forget it. Please keep us posted. Don't hesitate to contact me.

@Norma Contreras

Lots of complicated answers here. I think the first step is to talk to your banker and see how much you can get prequalified for. Also understand how much money you have available for a down payment. Once you have those two things you will have an idea of what you can reasonably afford. It is a good basic starting point.

From there, you have hundreds of ways that you can figure out how you want to structure the deal. But it all depends on your goals, risk tolerance, and basic strategy.

Best of luck to you, and congrats on starting your journey. This is just the first step of many!!

If you have a higher net worth or pay I would stick to SFH because you will transition to syndications quickly and sell off those pesky 1-8 units. This coming from an accredited investor view point. I started with turnkey remote rentals in 2009-2015 while working my engineering W2 job. Then went into syndications once my net worth went over 500k.

Buying an investment property and getting cash flow would be my answer. You can try to tap into the equity that you already have in your property and open a HELOC and then buy an investment property. Good luck!!