Pay off mortgage or save the money for next deal?

Question

Hello everyone,

I know this is the all too common question that depends on one's strategy and tolerance for risk but I am still uncertain about which way to go forward. I have a townhouse that is cash flowing and I have been paying it off very rapidly. The specifics are as follows:

Purchase price: 78K

Mortgage: 54,600 @ 20 years, 4.5%, 5/1ARM 20year amortization = $430 monthly

Rent: $950

Minus property management and HOA = $146 cash flow

The mortgage was started on 5/2015 and I have already paid it down to 24K. On my previous townhouse, I paid it off completely in a similar fashion. I was planning to do the same with this until I started to educate myself on the power of leveraging and using other people's money to make more for yourself.

So my question is, since I have committed to paying it off quickly should I follow through and keep doing it to free up another $430 a month? Or should I let the mortgage ride out and pay the minimum while building up my cash for my next deal?

If I stop paying extra now, when the first rate adjustment occurs I will only owe $12K and it will be paid off in 6 years.

Bruce Martin · Answer

@Bryan Otteson I will get off the fence and start saving for another. Afterall, we don't know where prices will go in the future. I don't self manage and RE isn't that big of a deal to me. I have job that I love so I am giving it 14 more years. I do consider free and clear to be low risk but I think I could make more by leveraging.

Bryan O. · Answer

@Bruce Martin I am not a fan of paying 50% extra and saving 50% extra. Get off the fence and it will double your speed at whichever strategy fits your goals. Do you self manage? If so, how much time do you have? If you leverage your properties to increase your returns you will also increase the amount of work you need to do to manage more doors. Are you retiring soon, or doing anything that will change the amount of time you have in the next handful of years? That could help determine your path. Do you consider free and clear to be low risk? Or do you prefer to see the bank have the risk in case of a mortgage downturn?

I like leverage personally, but I also enjoy "playing RE", like an infinitely more complicated game of chess. To me, leverage is your rook, or maybe bishop. No, knight. Certainly not queen. hmmm. I'll have to work on the analogy...

Best of luck and happy investing!

I like leverage personally, but I also enjoy "playing RE", like an infinitely more complicated game of chess. To me, leverage is your rook, or maybe bishop. No, knight. Certainly not queen. hmmm. I'll have to work on the analogy...

Best of luck and happy investing!

Christine Mwai · Answer

This is how I'm looking at it: the market is gradually changing and good deals are not as many in most markets as they have been. Interest rates are currently low, not sure for how much longer. So I would save to buy properties while the market is good.....then work to pay them off later...

Bruce Martin · Answer

@Doron Nissim Thanks for the advise. It does make sense to move forward with both goals in mind.

Doron Nissim · Answer

my suggestion would be without getting to all the numbers and complications.. cut the over payment in half.

keep paying over your minimum payment, but save the other half till you get enough money saved for a down payment for a second property. the second one would rent and pay for it self and will you enjoy the double cash flow, building up your portfolio and net worth.

keep in mind that prices goes up and you might not find the same numbers like you did in the past years. if you do find a great deal you should look close in to it and try to make it happen. . good deals are hard to find and they usually goes very fast...

good luck!!

Pay off mortgage or save the money for next deal?

5 Replies