Pay down land loan and/or save for rental?

Question

Hi Everyone, Quick question for you guys! I know answers will vary and a lot could depend on a number of variables but I wanted to get your thoughts.

I recently purchase 5 acres of land for $65k. The land is meant for my wife and I to build a house in the future. I put $30k down and have a loan of $35k @4.5% interest amortized over 15 years, balloon at 5 year. My banker is saying that I could utilize the equity in the land up to 75% LTV. I could pay the land off in about a year and a half and use the equity to buy a rental in the $60k to $160k range. Condo or SFH. or pay it off in 5 years and save the difference in cash if I were to pay it off in a year and half.

Main question is should I pay down the land loan in that year and half or 5 years? Which do you think would get me closer to my first rental deal?

Thanks!

Logan

Joseph Firmin · Answer

Yes, if that aligns with your goals. Sorry for the confusion.

Logan Marienau · Answer

@Joseph Firmin are you saying I should look into getting some of my equity out of the land loan and use it to help purchase a rental. Sorry I wasn’t following it.

Thanks for your help!

Joseph Firmin · Answer

Assuming your goals are to grow a portfolio (you need to get clear on this first), then you would use the equity and buy a cash-flowing property that will also pay down your land loan. Think about it in terms of how you can leverage the bank's money. Say you pay off the land loan. You now have untapped equity in the land that is just sitting in the land, not being put to work for you. Always try to keep your capital working.