Pay off commercial rental or invest in another?

Question

I need some advice for the current situation that I am facing. I have a commercial rental property which I am debating on paying off. I owe $104,000 with an interest rate of 8.5%, I make a gross $800 per month after monthly expenses. My mortgage is $1085 per month. Should I pay off mortgage or invest on another property? Why?@

Caleb Brown · Answer

As Denise sad that is personal but I would also look at the numbers. Can you use that 105K and invest in another deal to beat the $1,085 you pay for the mortgage? If you do pay it off an option could be having a line of credit against it that you can use for other deals. Not sure if it's worth it.

Scott Green · Answer

Maybe a little less if not break even to it investing in another rental home

Denise Supplee · Answer

Hi @Scott Green, it really depends on your cash flow goals and risk tolerance, paying it off gives peace of mind and stronger monthly cash flow, while reinvesting could grow your wealth faster if the numbers work.

For another commercial property to make sense, the numbers should show stronger returns than your current loan cost.

If the cap rate minus your financing rate still leaves positive leverage (meaning your debt helps, not hurts, your returns), then it could be worth pursuing instead of paying off your existing loan.