Nicholas,
Sorry to chime in late but i actually had the same question at some point like you did and I finally decided to put all the cash flow money back in paying back the mortgages, one at a time. I actually calculated for my properties how long will it take for me to pay off all of them if I start putting all the cashflow in one property at a time and pay them off earlier, and how much in total return will I get if the houses are paid in 30 years, difference was decent for me to push me to pay loans off. I did use a little pessimistic rate of return if that cashflow was used to purchase other properties.
I also missed a very important part of calculating return on investment over the years, depreciation of money over time! Basically if the decision is between saving 20K in 15 years in interest by paying off your loans, or making 40k in 30 years by not paying, your actual rate of return might actually be higher for saving 20k in 15 years based on inflation etc. Its just an example with random numbers, I haven't really compared those numbers. I came across this book which I believe is the first place I found which teaches cash flow numbers a little differently, still going through it -
http://www.amazon.com/gp/product/0071603271?keywor...
In the end numbers won for me, but its not true that I might not have gone the same way even if return was a little less. My end goal was to have a substantial income being generated for me monthly so that I can get financially independent fast, and to make that as fast as possible, I would pay off my rental homes asap. Either way you are trying to pay it off using rental income. I wouldn't feel financially independent with loans to think about, its a personal decision. Depending on the number of houses you have and how much cash flow they are generating, and if a lot of debts can bother you, it might be different for you.
I think maybe its personally how you view flow of money, or your "model". I never see "tenants paying off my interest", I see that as "my money going to the bank" which I could have saved :). But I am also a more conservative investor than many people and don't like over-leveraging too much. I would rather design for the worst case scenario even if the return is little less, as far as return is in the area I expect (or more :)). I would rather do flips to raise capital to buy new buy and holds, instead of using the cash flow.
And ofcourse advantages to paying them off faster was also that I could get loans from banks easily, since I am a newcomer to this world and really don't have any creative financing skills right now.
Hope anything out of my story is helpful:).
