Free and clear vs. leveraged

[Tim Moore]

Hey guys, so I keep flip flopping on how I want to structure my real estate business plan in the future. We always talk about "good debt" on BP and I understand that you can use the properties you have to leverage into more properties, but wouldn't your cash flow be much higher if you had it entirely payed off? Part of me wants to pay everything off as quickly as possible because I don't have dreams of being a billionaire or anything. I want enough passive income to supplement mine and my wife's W2 jobs so we can focus on what we love. Does paying off your mortgage not change the cash flow as much as I'm assuming it would or what? Help me out here and let me know what you think about free and clear vs leveraging your properties to get more. Thanks BP!

[Joe Villeneuve]

No.  It's an illusion to say it does.  Why?  Your tenant is paying off the loan for you through the rent.  When you try to "add" to the speed of this payoff, you are using "your" money (cash flow) to help your tenant pay it off.  Why would you do that?

In the end, actually from the start, all you are doing is giving away your profit.  If you end up with negative cash flow, or think that you are eliminating negative cash flow by putting more money down, you are not.  All you've done is pay all that negative cash flow upfront...and what's worse, you've also lost the investment potential of the use of those "extra payment" funds.  That's an exponential loss.  Thus the illusion.