An Aggressive Plan to Pay Off Your Mortgages Faster…


Years ago I found myself reading one of Dave Ramsey’s books. I can’t remember which book it was, but in it he discusses what he calls the Debt Snowball.  Essentially, as I understood it, debt snowball is a method of paying off debt whereby the main objective is to free up cash flow as quickly as possible by getting rid of monthly minimum payments so that this money can be “rolled” into the next step thereby compounding the result.

With this goal in mind, in lieu of starting the ball rolling with the largest debt amount and the most expensive debt in terms of interest, or making simultaneous payments on all of your debt, which most of us would gravitate toward doing, it may make sense to begin with the smallest and therefore easiest to pay off balance.  For example, if you have 3 credit cards with balances of $1,200, $4,000, and $7,000, you would throw all of the available to you resources into first paying off the $1,200 card – regardless of what the terms are.  This is because:

  1. You are most likely to “see it through” and not be overwhelmed, and
  2. Once paid off, the freed-up minimum payment can be applied toward the next debt – in line, making it easier to pay-off larger amounts; and so on and so forth.  In the world of compounding, time is of the essence and getting your hands on an extra $80/month within 1 year is better than collecting $300/month after 7 years…so goes the logic.

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The Mortgage Debt Snowball

Having read this, it became apparent to me that the same principal could be applied to paying off mortgage debt.  Suppose that you own 10 buildings in your portfolio and you have a mortgage associated with each for a total of 10 mortgages.  For the purposes of this example let’s just say that each mortgage is for $80,000 for a total mortgage debt of $800,000.  Further, suppose your portfolio generates a total of $3,000 per month of Cash Flow under current leverage.

Now – you’ve bought these buildings to provide income for you in your retirement, and now that you are a 49 year old geezer you’ve made the decision to go free and clear as soon as possible.  And to this end you allocate $2,000 of your $3,000/month of Cash Flow toward positively amortizing notes.

At this point you are faced with a question: would it be better to put $200/month toward the principal on each mortgage, or would it make more sense to throw the entire $2,000/month toward one of these mortgages?  You likely know the answer by now.

Paying Toward Ten Mortgages Equally

If you had $2,000 per month to reinvest, you could contribute a total of $200 per month toward each of the 10 mortgages.  All things being equal, this would lead you after 60 months to recapture roughly $12,000 of principal on each of your mortgages, for total equity position in your portfolio of $120,000.

This is not bad, but not particularly useful either.  At this rate it’ll take many years for you to own a property free and clear…

Paying Toward One Mortgage

By contributing the entire $2,000 per month toward one of the $80,000 mortgages, you will amortize it to “0” in about 40 months.  In doing so, and this is the very important point, you will not only free up laveragable equity, since now you have the option of cash out refinancing this house, but you’ll eliminate the payment associated with the paid off mortgage.  If we assume a 30-year loan at 6%, this will free up around $480/month.

At this point, and this is where it gets fun, you can either chose to pay off another one of your mortgages, but instead of throwing $2,000 toward the principal you will now be able to pay an additional $2,480 per month.  This means that in only about 34 months you will pay the second mortgage down to $0, and free up yet another payment associated with it, at which point you’ll be able to repeat the process.

Or, instead of moving to the second mortgage, you could chose to re-leverage the paid-off property in the amount and terms such that the debt service associated with the new leverage is equal to or less than the amount of freed-up cash flow.  And, if the asset that you are buying throws off considerably more cash flow than the cost of this debt service, then you Income & Loss Statement will have taken a step forward…

Interestingly, relative to that last point, while your cash flow position may have gotten stronger, your balance sheet remained the same.  Do you care?

Food for Thought: At this stage in my career the only reason I pay anything off is to free up leveragable equity and money for debt service…

Final Analysis

There are two reasons why we ever pay-off real estate debt.  One is to create leveragable equity that we can refinance, blanket, or bridge in some other way into additional cash flow.  And the other is to simply get rid of the debt and recover the minimum payment associated with it.

With this in mind, there are two serious problems with the approach of paying simultaneously on all of the mortgages.  While you do recover equity across your portfolio, the amount is not sufficient or sufficiently centralized to be able to bridge it with ease.  Yes, you can work with blanket notes and umbrella mortgages, but those are sophisticated tools that are not easy to come by or to manage.  Thus, the inability to bridge (leverage) equity with ease is one problem.

Also, while recovering equity on all properties may seem good, since not one property gets completely paid-off you do not recover any cash flow – all that you are getting for your hard work is equity.  Equity, as you know, does not put bread on the table, so from where I sit this entire process is rather meaningless…

Investing is about having options and by utilizing the second method of focusing all of your efforts on 1 mortgage at a time and paying it off you create options for yourself!


Photo: WSDOT

About Author

Ben Leybovich

Ben Leybovich has been investing in multifamily residential real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben is a licensed Realtor with YOCUM Realty in Lima, Ohio. He is also the author of Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.


  1. I agree completely Ben!
    Another reason I use the snowball method is because I don’t know how long my portfolio lender will continue to lend money on as many properties as I want. If they start putting restrictions on the amount of mortgages I can have, I want as many paid off as possible.

    • Mark ,

      Thanks so much for your comment. I have to say that of all of the people reading this, I am not too concerned about you in specific. I know what you’ll do if your portfolio lender starts being difficult – go get another one 🙂

      In fact, that’s not a bad thing to do Mark even if everything looks smooth sailing for now…

      Thanks so much. I think you and I are very much on the same page with most things RE.

    • Or, they will provide leveragable equity which to parlay into much larger projects which will accomplish the same Cash Flow but provide much bigger investment foot-print, which is a bonus always especially in an expected inflationary environment…

      Thoughts Sharon?

  2. I like the plan, but I tend to wonder if it makes more sense to pay down a mortgage to a certain point and then move on to the next mortgage. The amortization is setup in most loans to front load the interest costs in the first 7 years. In your $480 example, your interest may be $400 and principle $80. The nice part about throwing extra money at the loan at this point is every penny beyond the payment goes towards extra principle and not interest.

    Lets say you pay an extra $1000 or so, that would knock off 1 years payments(~$80/mo). As you get further down the amortization table say year 15, that $1000 will only reduce 6 months ($178/mo) off your payments. That extra money is less effective at a certain point.

    Ben, your thoughts?

    • Hey Bilgefisher,

      Your logic makes sense, with two big caveats:

      1. There is no recovery of Cash Flow – big downer. CF = options!
      2. In my world, meaning the world of creative finance, I paly with interest only note, so amortization never enters the equation. Money is a tool – I rent it and pay a fee for the privilege. I could go on and on but this would become an eBook hahaha

      Thanks much for your comment!

  3. Ben,
    Great post. This has been my strategy (huge Dave Ramsey fan) with one exception. All of our houses are paid off except one, then all monies will go towards that debt until it’s paid off. The biggest reason that my wife and I have chosen to do it this way (I know it is SLOW) but, my stomach needs to be ulcer free and it’s great to be debt free because this creates options and the ability to adapt and adapt quickly to the market. I am to a point where we can pay off a house within a year (ish) so it is a “snowball” effect. The next 5/6 years will be interesting as far as our houses go. I’m glad someone else uses this strategy.

    • It’s great to hear that you have such a solid foundation under you Steve!

      I’ve chosen to do things differently. I free up equity to leverage it into more property, for which I have strong rational. Please read my response to one of the following comments as I am going to touch on that…

      Again – great to hear you are doing so well!

  4. Yep, good plan. One I’ve already been pursuing and blogging about since the beginning of the year. My six house portfolio now contains three paid off with another only a few months from being paid off. The two remaining houses will be paid off in approximately two and a half years.

    Then at 54 I’ll be able to retire off my real estate holdings if I choose. My personal residence is also paid off (I started with that one first and accomplished that goal in 19 months). That will give me 7 free and clear houses and $0 debt. Not a bad way to go in a matter of 10 short years.

    • Sounds like you’ve got it under control Curtis – great!

      I’ve got a thought for you and everyone reading this. I am not going to go into a lot of detail here as I think this might make a good future article…

      We live in a very litigious society – having so much free and clear equity can put you assets and cash flow in jeopardy… just a thought.

      Thanks for your comment Curtis!

      • Ben, great point. Without stealing your thunder on a new post.

        1. Lines of credit ? They will show a lien on the property even if there is no money lent out.

        2. Two llc’s? One that manages operations and has no assets. The other owns the properties?

        • Mark,

          1. Good though on the lines of credit
          2. LLC not so much. They can and have been penetrated by good attorneys. We use them as the first line of defense but …

          Thanks Mark

  5. This is a practical solution that creates multiple options and strategies. Some call it the get rich slow scheme . I’ve been using it for a while without realizing that I was snowballing! To some extent payable interest is being converted to cash flow…

  6. Great post Ben. I too am a fan of Dave Ramsey. The debt snowball is a great way to reduce debt. I used it in my personal finances, and recommend it to all my friends. This may be unrelated to the point you are making. Can you explain the benefit be of paying off a mortgage just to get a line of credit as opposed to just accumulating the cash and using it?

    BTW, after hearing your podcast and videos, I can’t help but read your posts in your accent. It makes reading them even more enjoyable.

    • Haha – I’ve never had someone tell me that I write with an accent lol. I suppose it’s true though…

      To your question Hugh, cash needs to be used for things other than buying property – make loans, buy notes, buying a pizza joint, stocks, anything that is much more difficult with leverage. RE can be bout with OPM and should be.

      Now – I am not suggesting that you should EVER pay off at 30-year note at 4,5, or 6%. That’s cheep and very safe money – why pay it off. However, ARMs, balloons, and short ams we may consider paying off. Hope this answers your question – sort of…

      Thanks very much for reading my stuff indeed!

  7. Ben, thanks for the article. I have been working on one of my rental mortgages with this exact strategy in mind. In the end it all comes down to options and getting one of them free and clear certainly opens those options up a lot quicker than spreading the money around.

  8. Ben,

    Do you think it is a better strategy to purchase one property at a time and pay it off or try to acquire a few (3-5) and incorporate the snowball strategy that you mentioned above? The only reason I ask is because I was having a discussion with someone about this yesterday. He seemed to be debt adverse. He thought by purchasing more than one rental, you could put yourself in an over leveraged position and be exposed to too much risk. How would you address this situation? Thanks.


  9. I spent a big chunk of this year’s cash flow on significant renovations on three properties: These renovations have allowed me to increase rent by ~$400/mth and will decrease operating costs by a {forecasted} ~100/mth.

    This blip aside, all free cash-flow goes into the biggest, highest rate, mortgage first … all in the name of the 20+unit building I will acquire 🙂

      • Ben,

        I am starting to find more and more, that attitude {not the kind my 2yr-old exhibits} and approach go a long ways. Initially, I was hesitant to propose creative solutions to {would be} vendors our of concern of offending them and messing up the transaction. I’ve since concluded that having Realtors involved creates a too formal, often adversarial atmosphere, that does not nourish creative problem solving {I liken it to when two parties are communicating through their solicitors}.

        Now I have no hesitation – realtor involved or not – of proposing “solutions” to the Vendors that both solve her/his needs and, perhaps a little selfishly, better serve our interests.

        I have still to improve upon our ability to source private deals. As we regularly encounter situations with Realtors who are unsupportive of creative solutions – usually out of self interest for their commission or lack of understanding {the old “I’ve sold hundreds of houses and that’s not how it is done”} – but it just means you need to creatively meet their needs as well.

        That 20+ unit building is still in the future, but it will happen.

  10. Ben, great post when it comes to the why and how of paying off your mortgage balances. My wife and I are in our upper 30’s and have a number of properties currently. We are using a mortgage acceleration software to help with this — It essentially leverages short term debt (HELOCs) against long term debt (the mortgages). While we have a significant amount of disposable income being thrown towards the payoffs, the software has helped us set up a plan to be completely debt-free in less than 5 years. At that point, our intent is to leverage the equity as you suggest for additional cash flow. Keep up the great work!

  11. Good article. I might add that if you have multiple balances that are close and the terms are significantly different, you might be better off paying down that first, even if it takes an extra month or two.

  12. Lets take your same example of 10 properties with 10 mortgage, all with varying rates and balances. Now, lets change the scenario such that 2 of the properties you do not plan on keeping long-term. How would these 2 properties factor into the payoff list?? Would you still target these mortgages first if they had the lowest balances?? Or would you skip them and solely focus on the long-term hold properties. This is something I have struggled with in my path toward creating a free-and-clear portfolio.

    • They wouldn’t Stan – the idea behind paying thing off is two-fold:

      1. Free up CF
      2. Create leveragable equity

      By selling them you’ll get rid of the payment anyhow, and it’s not like you can lien on the equity once you sell it lol

      Makes sense? Thanks so much Stan!

  13. Deciding which loan to pay off first depends on how you look at it; logically or emotionally, and what the terms are on your loans. Mathematically, it makes the most sense to pay off the loan with the highest interest rate first. The debt snowball takes advantage of psychology, which we know is powerful, and that’s why this method is so revered, even if it’s not the most logical numbers-wise.

    Example article of many out there on this topic.

    • Greg – you are right and wrong…

      The benefit of paying high-interest notes off first is that because they are front-loaded we save a lot of money in interest – I don’t dispute this.

      However, to me % is a tool. I view % as rent on money borrowed. It’s cost of doing business and it’s not my cost – it’s my tenant’s cost.

      SO, quite literally my main concern is CF – paying off which note will put more CF in my pocket sooner? This is the only question that needs to be answered 🙂

      Most people would likely agree with you because the numbers clearly do show a benefit. However, I am not most people and I look at numbers very differently. And, by the way, this has nothing to do with feelings and emotions. Just the opposite – emotionally I would do what you say. Thoughts?

      • Sure, when you have someone else paying off your mortgage, every little dollar isn’t quite as important as when you are paying it off yourself. So yes, the quickest way to get cash flow is by paying off smaller mortgages. The way to save yourself the most interest over time is to pay off the highest interest rate loans first.

  14. Excellent article! You are on the money. Let’s assume the mortgages are 30 year notes and you pay down one at a time with the full $2k. Further, you are astute enough to not have a pre-payment penalty clause in your mortgage note and you specifically direct the loan servicer to apply the additional payment to “Principal Balance Only”. Using the “snowball effect” is exactly what everyone should do to reduce their principal balances, create increased equity faster, and provide the opportunity to leverage that equity to pay down other principal balances quickly.

  15. Something that might come into play (especially for the nearing-retirement crowd) is to pay down what you plan to keep the longest (for whatever reason–location, easiest to rent, least likely to need major repairs). For my parents, having 4 highly desirable rentals adjacent to their house means being able to continue to manage their properties even though they are 70 & 80. This option isn’t for everyone, but it fits their people-loving personality, & my Dad gets to “garden putter” in the public space of the rentals and keep it looking good. Vacancy rate is virtually 0%.

  16. I think you’ll find using a financial calculator that paying down 10 mortgages (with the same interest rate) equally gets you to the same ending in the same amount of time as snowballing.

    The key difference is the other advantages you outlined. I have been doing this snowballing for 2 years now and it is working out quite nicely. I understand the desire to free up cash flow sooner rather than later but I’d rather save money by attacking the highest interest rate mortgages first.

  17. ” since now you have the option of cash out refinancing this house, but you’ll eliminate the payment associated with the paid off mortgage.”

    Q. If you do a cash out re-if, don’t you just have a new refinanced mortgage payment taking place of the old mortgage payment?

  18. Ben, I feel like I’m missing something here. Your main emphasis is to get more CF as soon as possible, but you’re using all your CF to expedite this process. It takes you 40 months to free up $480 of CF and add $80k of leveragable equity.

    Why can’t you save the current $2,000 cash flow until you can invest it properly in a shorter amount of time?

    Quick rough scenario:
    Let’s say you save up the $2k until you can put 25% down for a $100k property that would provide you with $300/mo in positive CF. With closing costs you could have this property after 14 months. If you add that $300 to the $2k you could replicate this process in 12 more months. And then replicate it again 11 months after that.

    This would come out to:
    +$300/mo CF after 14 months
    +$600/mo CF after 26 months
    +$900/mo CF after 37 months

    You would have added $900/mo CF in less than 40 months with a little under $80k equity.

    Compared to your example of $480/mo CF after 40 months w leveragable equity of $80k.

    Why would the snowball method be more effective?

    • Answer – because I would rather have $5,000 form 50 units then from 10 paid-off.

      This is a great point Jason, and one that you are missing. Going into inflationary environment I want to control the largest possible asset base. Do you understand why?

      Thanks so much Jason!

      • Sorry, I am confused.

        I thought it would be better to increase your asset base using the example I gave above, as opposed to the snowball strategy. It seems like it would take longer to increase your asset base if you wait to pay off a property (especially if it takes 40 months).

        • Oh I see – here are a couple of thoughts,

          1. As you grow you will need to venture into the commercial lending space for those notes, which will mean ARMs – paying things off allows you to control CF at the rate adjustment.

          2. You will find that your DTI will prevent you from being able to just go and buy stuff as you’ve outlined – at some point you will need to pay things off in order to take on more debt.

          3. Balloons need to be paid off

          4. In my world, I deal a lot with interest only notes whereby the minimum payment is recalibrated annually based on remaining principal, thus I can improve my CF from year to year by paying down balance.

          Jason – in my experience it is not possible to build a business model with 50 – 500 units around 30-year Fannie/Freddie type notes. At a certain point it becomes necessary to take on debt that needs to be paid off, and then the question is HOW do I structure the process of paying things off. Notice, I’ve mentioned earlier in this thread, I do not and would not recommend paying off fixed rate 30-year notes. For those, your method works better 🙂


        • I see. Definitely makes a lot of sense. I can see why the snowball strategy should be followed by many investors. It’ll take a while, but I look forward to getting to that level. At least I’m aware of it now so I can utilize it once I have built up the portfolio.

          Thanks so much for the insight.

  19. I have to recommend not paying off a mortgage early. While the idea of becoming debt free and having leverage is appealing I also look at the lost opportunity of that money. 30 year mortgage rates have fluctuated between 4 and 6%. I would rather put that extra cash into acquiring more properties or investing in the stock market. It is fairly easy with the proper research to earn more than 10% in the stock market. I would rather make more money or aquire more properties with available cash then using that same money to pay off a lower rate interest amount.

  20. Looks like I have some agreement with Ben’s philosophy.

    I am 41 years old, own 20 rental doors, and plan to invest in real estate for a long time. With 30-year fixed rate low interest notes, I am leveraged to the maximum. Fannie / Freddies, no portfolio loans yet. So I won’t pay more than the minimum on any note.

    Paying more than the minimum does not improve cash flow on these amortizing loans.

    Additionally, extra principal paydown reduces one’s leverage ratio. Keeping a higher leverage ratio with just 20% equity (5:1 leverage) turns 6% market appreciation into a 30% return (6 x 5) on a leveraged investor’s down payment.

    If I paid the note down so that I now had built up 33% equity (3:1 leverage), the same 6% market appreciation would only return 18% (6 x 3) on my down payment.

    Although I buy for cash flow first, I know that over the life of a property, leveraged appreciation is often an even greater investor profit center than cash flow.

    • Keith, Ben, Thank you for all your info, I’m not yet a great knowledgeable investor, so I would need more explanation from you. I have so far 6 apartments, 5 in France and one in London. My return are not the best and I was thinking the same as Ben (originally wanted to pay it all back starting by the smallest loans as I read the same book) but now maybe only the shortest loan as you explained. If I would pay those 65k back of loans I would get 1k extra cash flow per month, I’m thinking today it’s difficult to have a better return. I don’t feel I should invest this instead (by doing this I have less management of properties, less risk and a re-invest into something which gives me a good return).
      Please could you explain more in detail your 6% on your non equity part, yes you will be doing 6×5 but if you payback and get your cash flow each month and reinvest it at the end of the year in properties you should do better without paying the bank and their interest.
      Please help me to understand better…

  21. Ben –

    I’m using the snowball method in a two part way – let me know if you would have anything to add to it.

    What I’m doing is basically a combination of what Jason R. said that what you are saying about snowballing your debt. RIght now I’m in the process of building up my property portfolio so I’m using the excess cash flow for the downpayment on the next property. After about 10 more years, I’ll switch towards using the excess cashflow to pay down one mortgage at the time starting with the oldest one (because the balance will be the smallest).


      • Ben –

        Instead of making extra payments, what are your thoughts on letting the excess cashflow build up in a checking account and making one big payment to pay off the loan instead of paying extra each month. This way, in case something happens you are more liquid. If making extra payments would reduce the amount of interest for your next payment I would be all for it but it doesn’t move your further down the amortization chart (at least on my loans).

        • What kind of loans do you have that paying down principle would not reduce the amount of interest you pay?
          On an amortized loan your payment won’t chance but the amounts of the payment going to interest will be reduced as you pay off additional principle.

          Aside from that even with reduced interest expense there is merit in your suggestion. As one pays down a loan you are gaining equity but it isn’t readily available. If you want that money for a good deal that falls into your lap or is the “Oh S*it!” factor rears it’s ugly head being liquid is a good thing.

        • If I make additional payments, it basically starts at the end of the loan and starts to chop off payments, it doesn’t move me forward on the amortization schedule. The breakdown of my next payment (interest v. principal) won’t change no matter how much I prepay the loan unless I pay it off completely. That’s why I’m tempted just to build up the funds in a checking account and make one big payment.

        • On my mortgage there’s a penalty if you do a single payment over 15k. A large part of any overage is taken by fees, and does not go towards your principal- check to make sure you don’t have something nasty like that on your mortgages. If you do, it makes a lot more sense to pay an extra 2k a month and avoid spending good money on bad fees.

  22. Best article I’ve read in a while Ben, thanks for sharing it.

    How old are you if I may ask? And at what point do you plan to stop adding additional properties with your equity and to fully finish the snowball effect on your holdings? Or do you ever plan to quit?


  23. Great stuff Ben.
    Interesting that based on the comments it doesn’t sound like you would ever actually do the example you gave in the article. 🙂

    In a rare twist the simplified example given with the 10 mortgages is actually not as good as the actual reality of the payoffs! While usually people say for approximations you just ignore the principle component of the mortgage payment the first few years of a long term amortized loan, in this case the composition of the required payment (The $480 you pay before adding the $2,000) gets principle heavy pretty fast. The first payment would only be less than 17% principle but would be over 50% around month 15.
    So you should actually pay that first one off in the 36th month.

    Now on loan #2 after 36 months you would have paid the principle down just over $3,100 already when you start your snowball $2,480 extra payment. So it isn’t going to take another 34 months to payoff but only about 28.

    This is actually what I think about when talking about the snowball effect on an amortized payment. The shift in the amount going to principle on each required payment is a very powerful compounding effect and helps the process along.

    To illustrate this lets say this was your strategy and you started paying down loan #1 fast for 5 months. At this time something came up that made it unrealistic to pull that $2,000 out for this anymore, at least temporarily, so you stop after putting $10,000 towards the principle with those payment.
    Even when things settle down you decide to not to ever pay another extra penny towards the balance again.
    So just by overpaying those first 5 months the loan will payoff off about 13 years earlier.
    This will give you almost $75K in additional cash flow for those 13 years as opposed to the other 9 loans that will happy go along their way for 30 years.

    While this does nothing for current or near term cash flow and is not a big enough chunk to help you leverage the equity for a while this is not a bad little outcome on the backend just by paying a bit upfront and changing the make up of your required payments faster.

    • Shaun- you are right in your assessment of the math. You are also right in saying that I am not likely to follow the example illustrated herein. 🙂

      I don’t think that it is the smartest thing to do to pay off 4% 30-year amortized loans. Money is a tool of the trade which we borrow and pay rent on in order to achieve. At those type of favorable terms it is crazy to me to pay the money off…

      I live in the world of much higher interest rates, ARMs, balloons, and blankets, all of which change the rules of the game substantively. But, the principal of snowballing remains intact – pay of the 1st / free up cash flow / increase the amount you throw into the principal of the second. Refinance along the way / put property into a partnership to cash out the underlying along the way / liquidate having made money with CF and forced appreciation along the way / etc. You get the point.

      Thanks so much for your comment indeed!

      • Making this kind of choice to accelerate any debt payoff will always depend on ones goals and what else can be done with the money.

        First I would generally categorize 3 basic types of debt.
        1) Revolving credit lines. Payments will change based on the balance. Credit card debt is the most common.
        2) Fixed term amortized loans like mortgages and car loans, but any other installment loan would count.
        3) Other. 🙂 This would be the things that you mentioned Ben in the commercial space but also things that can be encountered. I’d say that most common would be someone with a residential ARM on a property.

        – Revolving debt is almost always a good investment to get rid of. Unless you have some promo rate it is usually very expensive money. Also since you get a payment invoice every month as you pay it down you are releasing cash flow by having lower minimum payments.
        – Skipping to other and for the sake of the masses I will stay with a residential example. If you have a ARM that is in the adjustment period you have to evaluate it more. Over the last few years many of these would actually adjust down (as has one I have) so not much incentive to “get out” of that one. Of course that is unlikely to happen next adjustment unless rates trough again.
        Another consideration on that though is while you don’t the immediate cash flow relief of revolving credit accounts if you pay down the mortgage at each adjustment the amortized payment recasts with the new balance as well. In theory you actually can’t ever pay off the ARM early without continued additional payments since the payment will adjust for the remaining term of the loan. Paying this debt off faster will reduce your payments annually (at least relative to the payment on a higher balance with your new rate) it also does help you get out from under the risk inherent with interest rate fluctuations.
        – Last one is your fixed rate debt. This will all deal with your goals and what else can be done with the money. If you have low rate notes and want to acquire more properties and need the money for down payments, closing costs, or reserves (Even if you try to only buy with no money down you still want to have reserves) then it doesn’t make much sense to put extra cash towards paying down the mortgages. If you want to have some free and clear properties to leverage or use as collateral for less traditional purposes then it could be beneficial to pay off at least 1 as fast as possible to have that unencumbered asset to help with this. Finally if your goal is not really to acquire more property but to maximize cash flow this makes a lot of sense since as you rid yourself of the debt your cash flow increases a lot and you also will save tons of money in interest costs over all those years you aren’t paying for financing.

        Lots of reasons why it makes a lot of sense to pay off debt (any debt) as fast as possible while there are just as many reasons why it can be seen as a terrible investment.
        Different strokes for different folks…

        • All very good ideas Shaun. I’ll only mention the following:

          I don’t like the notion of paying down of low interest amortized debt – period. There are many reasons for thins, some of which are financial and some are liability exposure-wise.

          However, in the creative finance realm we can access available equity without the need of paying off “good” debt – this would be my preference.

          Thanks Shaun- happy investing!

        • ” some are liability exposure-wise”

          Yes having lots of free and clear assets can make you a big target.
          It would be wise for people that want to be “debt free” to still learn about equity stripping to have the appearance of encumbered assets.

        • Ha – equity stripping is illegal Shaun. Be careful! But, while having 1 free and clear asset may not be a huge concern, having many is a potential problem that should be addressed indeed!

          Thanks Shaun!

  24. Ben, I think that is a great idea if you are paying extra money on your mortgages, but my question is why pay ANY extra on any mortgages to are cash flowing? Couldnt that money be better suited to aquiring more property?

    • Hey Pete – you are right. I don’t think it is wise to pay down 30-year amortized notes at 4% – 6%. But, there are a lot of mortgages which incorporate balloons, ARMs, shorter ams and higher interest rate which absolutely have to be dealt with…

      Thanks for reading and commenting Pete!

  25. Jeff Brown

    Ben, if somebody was suing you, the fact that you didn’t have a buncha free ‘n clear income properties wouldn’t stop them. They’d eye all those high income producing properties you might own at the time, and be just as happy with the income comin’ their way instead of yours. Having debt on your real estate provides a false sense of security.

    • Hey Jeff,

      Not many things will actually protect you if you do something wrong.

      Stuff like holding debt on your stuff is more to fend off the frivolous ambulance chasers that are hoping for an easy mark. They don’t want cash flowing property, they want to liquidate them and get cash.

      Also to Ben, not sure what would be illegal about having an equity stripping scenario. The idea was actually recommended to me by an attorney. It probably would fall apart if you did lose a law suit but don’t see what would be illegal about it.

    • Hey Jeff – how sure are you that we are not related? I’m really starting to wonder cause my father busts my bubble about the same way you do – all my life 🙂 LOL

      I agree and disagree Jeff. In principal you are right. However, many fewer attorneys would take the case and even fewer would work as hard as would be necessary to win. Those guys by and large want to get paid today, which is a function of equity. Sure, someone may do it, but with lots of available equity – every shyster would jump at it.

      Therefore on balance, equity = unnecessary exposure. Thoughts?

      • Jeff Brown

        But many would settle to avoid expense, court, time, etc. A few low equity properties cash flowing at a combined several grand a month is a whole lot better than a sock in the eye. The investor faces prolonged time and expense OR, if they believe their case is weak, they can simply give over the property(s) just as quickly as the high equity defendant.

        • Perhaps Jeff. However, you are gonna have a hell of a time convincing me that having a lot of equity is better on balance from a liability stand point than not. All kinds of things can happen in different circumstances, but ON BALANCE this is like putting a target on your back unnecessarily 🙂

      • With all that equity and so much more cash free to flow, you should be able to get a much better lawyer.

        I’ve found that the person with the better lawyer usually wins, no matter what the facts of the case are. America, land of the litigious- where people get the best justice they can buy. 🙁

  26. Why it’s good to have at least 1 pd off… With 1 pd off you can get an equity line against it. 0 balance=0 pmnt if it’s not used, but you suddenly have the ability to write a check for 70k or so. This allows you to make a “cash offer” and buy another sf for say 50k, rehab in another 10k, THEN get it apraised at 80k and finance it. LTV being 85% you get a chk at close for 68k (8k more than you’ve spent). Rinse and repeat, a modern day no money down. Has worked great for me on sf’s. Advantages= Cash offers are well received, only 1 closing cost as opossed to closing at purchase, rehab, then refi. (aka 2nd closing cost), and lastly you can use the account for cap maint like a new roof, etc.

    • Dave – you are absolutely right. We call this Building Your Own Bank 🙂

      The system gets more complex as you grow though because there are only so many SFR that the secondary market standards will allow you to have. Following that, you’ll be forced into commercial and a refi of a SFR in 20-year with 5-year adjustables doesn’t really work as well. But, in principal you are right on.

      Thanks so much for your comment!

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