Paying off a mortgage vs leveraging the investment property

I pay mine off. My work is hit or miss and I don't like having a note.

It all depends on what your goals are. Where do you want to get to? To be scale as quickly as possible I'd certainly leverage the bank as quickly as possible. If your goal is to have an extra 2k in the bank every month then go ahead and pay off the mortgage.

I would disagree with the more properties, more problems though. If you lose 1 tenant and you have 1 house you're at a 100% vacancy rate. If you lose 2 and have 10 you're at a 20% rate.

I agree with that, and for what it's worth I screen the hell out of my tenants and haven't had many issues.

My goals change all the time

My initial goal was to scale fast with leverage, get to ~10 properties, then 1031 exchange them into a "large" multifamily.

Now i'm thinking of paying down one or two (I have 3 total), before buying #4 with leverage. I thought about looking into a vacation rental as well.

I took a loan out on my 401k to pay for the downpayment of my 3rd property, and i'll have that paid off in July.

So I have 9 months to make a decision, and change my mind again.

foshizzle -

"If you just want to get out of real estate that's a completely different thing than paying the mortgage and keeping the property."

By no means do I want to get out of real estate. What I meant by that comment was directed towards- Paying off my 3 properties vs purchasing 3 more.

To clarify, I am NOT in the camp of "I don't want to fix a toilet at 2am" anti-real estate crowd. I am 100% pro-real estate and I haven't had many issues with REI so far. I love love love the idea of RE as an investment vehicle.

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1) I like the idea of essentially doubling my cash flow for the month.

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right but it also severely LOWERS your COC return!

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2) Although not ideal, vacancy isn't as much of a back breaker if the property doesn't have a mortgage.

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true but will you have vacancy concerns? Or do you have solid continuity with low down time between leases? Or do you have long term tenants?

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3) Less properties = less problems (tenants, cap ex, etc)

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scrap that mentality. more QUALITY VALUE properties is always better. The more PCF you have the more money you have to DEAL with vacancies and maintenance becuase they WILL happen. You just have a few properties without proper reserves this COULD pose a problem. I wish i had the post i made about this the other day but here is my philosopy in a nutshell and what I would do. IT MAY not be for you. You have to do what you are comfortable doing.

First off i do not like "DEAD EQUITY". I only believe in cash buys if it is a really cheap property(but not crap in the hood) OR once i have enough PCF annually to do cash buys in my NORMAL price range once all my fannie mae backed mortgages are maxed out AND if i am done with private mortgages will i entertain that idea of cash buys.

Does that make sense? IOW, if my annual PCF is 75k and most houses i buy are that range ONLY then will i do a cash buy if i am tired of private mortgages and my conventionals are maxed out. When you do a cash buy at that point you are not as exposed with that dead equity. You still have a ton of money coming in annually.

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I could either aggressively pay down my 3 properties and collect all the cash flow to invest elsewhere
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I could buy investment property #4 with 20% down.

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and how long will it take you to pay those off? which then gives you a higher PCF but much lower COC return....to invest in something with lower returns? Keep leveraging and use cash flow with earned income and keep piling up the properties. In the time it took you to pay those houses off how many more properties could you have bought?

look, we all struggle with this at some point in time but ask yourself....where else will you get consistent steady returns? SOme of my dividend payers are great per stock market standards but they still do not touch my physical RE returns and believe me i love my REITs and BDC's. Also, as you already know more down payment= more cash flow. A 20-25% DP is perfect. you do not want to be over leveraged on some owner financed stuff with 5% down. too many of those can get you in trouble. I like the happy medium. nice COC return and nice PCF.

When i hit 59.5 i am transferring every cent from my TIRA and RIRA into RE. I will only keep my brokerage accounts. There are good reputable TK companies out there where you can make killer cash flow. My properties rent for a little less than yours and 350 a month PCF is the lowest i will go with a conventional DP in my price range or i will not buy. My COC returns are in the 20's and I have one in the 30's. My cash flows are from 400 to 700 a month on leveraged properties. If you are getting 400 PCF that is great. Most guys i know won't go below 200 PCF in a seller's market.

Real estate is addictive but when you keep looking at returns with RE versus other stuff it makes you challenge how we were always taught stock market, stock market, stock market! The whole damn thing is psychological honestly. Many people cannot get over that hump.

That is about all the info i can share on this board. You would have to contact me offline. I share plenty in my RE thread but we all have our limits especially here on this website.

same here although my properties cost far less most the time than those you listed. i do not have time for fix and flips on a LOC like some do. that is a masterful way to make some jack without using a dime of your own money.

see if anything here helps you