Should you pay off a house completely?
Paying off a house completely is a trap. You should avoid it if you want to amplify your wealth.
Here’s what to do instead:
Successful investors own nothing outright.
They sit back and wait as their properties go up in value and their tenants pay off loans for them. This builds equity. Then they extract this equity to invest in more wealth building assets instead of paying it off completely. All that extracted cash isn't a taxable gain. It's simply a loan against growing equity. When you refinance, banks look at your property's value, not your personal credit. You can use this equity over and over to get more cash to buy more properties.
Why pay off loans when you can use your property's value as leverage?
Counter argument:
Paying off a house reduces risk by eliminating mortgage payments. This makes it a safer bet than unpredictable market investments. This strategy improves cash flow, allowing more freedom in financial planning and personal spending. Plus, the emotional peace of mind from owning a home outright is significant, offering both psychological and financial benefits. It also simplifies estate planning by ensuring properties can be passed to heirs debt-free. Despite the appeal of leveraging debt for wealth expansion, the security and certainty of a fully paid home offer compelling advantages for many.
Pro tip:
I look at the metric ROE, Return on Equity over ROI, Return on Investment.
ROI = (Net Operating Income/ Total Investment Cost) × 100
ROE = (Net Operating Income/ Equity) × 100
For me, what is best for you is dependent on what stage of your investment lifecycle you're in coupled with your risk tolerance and personal financial goals.
With Discipline,
Josh