Paying off properties vs. buying more properties

[Dave Blackman]

Hi all,

I just purchased my first two properties in KCMO and am looking into more.  I have enough cash to purchase one more conventionally then I have to start getting creative (portfolio loans, private lending, etc).

Do you think it would be more advantageous to put monthly savings towards paying off the principle on the two current properties (could pay them both off in about 4 years with HELOC method which would save me long-term about 45k in interest), or continue to pay the conventional 30 year amortization/interest on those two and focus on acquiring more properties?

I know conventional wisdom says acquire more property, acquire more debt -- but as a "normal" person who uses extra savings left over from my disposable income (read: I'm not wealthy), I'm torn between going full force on reducing debt on the current properties vs. acquiring more debt via other means.  With the interest rates looking like upward movement is imminent, I'm swayed towards acquiring as many loans locked in at today's lower rates as I can max out at -- and then focus on paying them off starting in 1-2 years.

Thoughts?

[Kevin Hunter]

@Dave Blackman, I agree with the previous post but will try to provide some useful help.  First of all, congrats on building your portfolio.  Based on current interest rates and the likeliness that these rates will not remain so low, I think you should continue to build.  IMHO, continue to pay your two properties on the 30 year amortization and keep the other cash flow free.

As for your next property, the problem with another conventional loan, as you know, is the 20-25% you have to put down. How much equity do you have in the two properties you already own? If you have the ability to refinance and pull some equity out, I would consider doing that. Can you get a line of credit against one or both of the properties? Instead of using a HELOC to pay dow your debt, use it to expand your portfolio. If not, is there any other way you could finance the down payment? Maybe private money, family, friends, etc.... that could help you to avoid liquidating all or most of your savings... All of these are options and will help you to get what I believe is the right thing, which is continued expansion.

  I really believe this is the hardest time for an investor.  Continuing to press on after two or three, for a normal person with a normal job is where is starts to get uncomfortable.  Do the research, run your numbers, trust yourself and you will do great.