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Updated 10 months ago on . Most recent reply
What to do with cash, pay off a rental or buy more
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?
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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👍