[USER]

Asking for advice/thoughts on how to pay off rentals. Husband and I have three rental properties, should we pay off 5% interest loan (highest rate of the three) in about 3 years (78k remaining) then role 100% of profits from that property into paying off our 4% mortgage (95k remaining) and snowball that into the third loan once the second is paid off?

Or should we pay down whichever house has the highest interest each month (we are currently paying more $ per month on interest on the 4% mortgage than the 5% mortgage because the 4% has a higher balance)?

Pros for paying off the 5% house- it’ll feel really good to pay off a house and we’ll be able to pay off house #2 faster by reinvesting profit.

Cons- we won’t be able to deduct interest from taxes if we pay off balance.

Hope this is making sense?
Husband and I are 26 with no kids. Fully funded emergency fund and emergency funds for each rental property.

these are private loans mostly from family and I personally want to pay them back as quickly as possible.

We are very fortunate and are able to also invest 3,000 + per month in retirement accounts, so we feel our investments are varied, we’re not only focusing on rentals.

[Ian]

Paying off your primary residence is good. Paying off your rental properties is not good. Taking the Dave Ramsey mentality that “debt is bad” into real estate investing is a recipe for losing money.

Personal budgeting and finance is different than business budgeting and finance.

Even asking the question about paying rentals off early demonstrates that you don’t understand real estate investing or how/why real estate is a good investment.

You will get a better return with less work and lower risk if you focus on stocks.

[David]

The more you pay off a rental mortgage, the lower its return. You’ll lose tax benefits and your return on equity will drastically drop to 4-5% (it will drop to the rate the property appreciates).

Your cash flow will go up but that’s pennies compared to the returns you could get on the property and the cash.

The same thing will happen for each property and your returns will be less than a third of the alternatives.

That’s big numbers in the long run.

[Anastasia]

You have good interest rates. I am in the same position. Not paying my loans down, letting my tenants pay them. And the income I have from rentals gets reinvested, buying more properties with cash.

Letting those loans work for me.

It feels good to own properties paid with cash and to have mortgaged properties with favorable rates people cant get today.

The more good leverage you have, the more you can afford with free cash, the bigger the number of your assets appreciating. Have it work for you

[Valerie]

My husband and I paid off two of our duplexes and although the cash flow is nice, if you believe the group that you can actually earn a 10% average return in the market in VOO, you’d be better off investing those funds instead of paying off the mortgages.

Or, if you don’t want to chance the market going down, if you can find a HYSA that pays at least in the upper 4’s, you’d be better off with the money in the HYSA earning the spread between the rate you’re earning and the mtg rate you’re paying.

Problem with that is can someone do the math on where that puts you with paying tax on the interest earned but getting to keep the mortgage interest deduction?

[Author]

Posts