Pay Off Properties vs Purchase More Properties

[KB Bergeron]

Greetings Everyone!
My name is KB and I am currently serving in the military. I have 2 rentals (one I previously lived in and converted into a rental, and the other purchased as a rental) Question: Does it make sense to put forth as much $$ as possible toward the two rentals...in order to pay them off within the 6yrs of active military service I have remaining....to more effectively (recieve 100% rental income from both rentals) supplement my retirement?? Or should I concentrate on building my portfolio by trying to accumulate more properties. (by saving up for down payment, or by rerfinancing). Your experienced opinions are greatly appreciated. Thanks in advance for your help! :D

[David Collins]

Greetings, KB...best of luck in your investing activity!

It might help to keep in mind a simple fact: Mathematically, paying down a loan which bears interest at X% is identical, in terms of net economic value, to investing that same amount at X%.

Putting it another way, if you have Y dollars available to employ somewhere, just think of 'loan paydowns' as one more investment possibility, among your other options.

Suppose, for example, you could either use your discretionary Y dollars to pay down a 6% loan, or could instead deploy the Y dollars into an 8% investment. Paying down the loan is economically equivalent to investing at 6%, making it (obviously) the inferior choice in this particular fact set.

Without a doubt, you MUST also evaluate other factors. You might, for example, want to de-leverage your personal balance sheet for other reasons (risk; too much leverage; anticipated future financing), and this might override the simple "rate of return" rule of thumb I've described.

Nevertheless, it's a simple, and usually valuable, rule of thumb when evaluating your options.

Cheers!

...it was early and I was full of no coffee...