Skip to content
×
Try PRO Free Today!
BiggerPockets Pro offers you a comprehensive suite of tools and resources
Market and Deal Finder Tools
Deal Analysis Calculators
Property Management Software
Exclusive discounts to Home Depot, RentRedi, and more
$0
7 days free
$828/yr or $69/mo when billed monthly.
$390/yr or $32.5/mo when billed annually.
7 days free. Cancel anytime.
Already a Pro Member? Sign in here

Join Over 3 Million Real Estate Investors

Create a free BiggerPockets account to comment, participate, and connect with over 3 million real estate investors.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
The community here is like my own little personal real estate army that I can depend upon to help me through ANY problems I come across.
Starting Out
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated 10 months ago on . Most recent reply

User Stats

17
Posts
4
Votes
Farooq K.
4
Votes |
17
Posts

What to do with cash, pay off a rental or buy more

Farooq K.
Posted

Hi,

I keep looking at current interest rates and property sales. It appears mostly property prices are on downturn all the zillow listings are showing price cuts left and right. I have one rental I can pay off possibly, and be free and clear that would increase my cashflow about $1000/month using 150k left on mortgage. I was thinking I pay that off, and then snowball that into my primary house, and try to pay off primary house, about 470k left there. And then I try to save up cash to buy rentals. I know this is pretty conservative approach, but some of this is tied to our spiritual beliefs on interest and leverage. I follow a lot of Dave Ramsey groups and listen to him a lot, and this seems to be the approach he promotes. In this type of environment I think cutting risk is a good idea. But also thinking how else could I play this out. I was also wondering, would you take 2 paths and end up at the same destination, ie 1) Pay off houses save up cash buy rentals, 2) Use leverage now buy rentals with 20% down , do you just end up in the same place ? Should you pay off rentals / current homes, then snowball cash to buy more rental?

Most Popular Reply

User Stats

10,250
Posts
16,108
Votes
Steve Vaughan#1 Personal Finance Contributor
  • Rental Property Investor
  • East Wenatchee, WA
16,108
Votes |
10,250
Posts
Steve Vaughan#1 Personal Finance Contributor
  • Rental Property Investor
  • East Wenatchee, WA
Replied
Quote from @Farooq K.:

I have one rental I can pay off possibly, and be free and clear that would increase my cashflow about $1000/month using 150k left on mortgage. I was thinking I pay that off, and then snowball that into my primary house, and try to pay off primary house, about 470k left there. And then I try to save up cash to buy rentals. 

This should be just a simple optimizing return on cash or cost/bnefit issue.

We can all earn 5% risk-free in money market MFs and accts right now.  That's our basic bar of comparison.

Is it better to earn 5% risk-free with 100% liquidity?   Or is the rate on your mortgages higher than 5% + a lack of liquidity premium? 
Are your mortgage rates at least  6%? No = save the cash at 5%.  Yes= consider paying down the mortgages.  

No mathematical reason to pay off low rate mortgages only to turn around and borrow at 7.25% (plus $5k and hassle of obtaining) your money back that you used to pay off your 3% or 4% loans.  

Best to buy your next rental with cash to save yourself the $5k loan fees and 7.25% interest👍


Loading replies...