Bought first property, now what ?

[Joe B.]

Hey all I bought my first property for $190k. PITI is $1200. It is a 3/2 single family home. I am renting out 2 rooms for $925 and I am living in the last room. I am also laying $600 towards principal. My question seems rather basic, but what’s next? Long term id like to do real estate investing and get my next property by 2021. Is it worth paying down principal ? Should I pay the minimum $1200 and save the remaining for my next property? How did you all get your second deal??

[Joe Villeneuve]

Keep in mind, the tenant is already paying off the debt for you...and that means it costs you no money at all right now.  So, why would you start paying on something you don't have to?

Any money that comes out of your pocket is money you must recover BEFORE you start making a profit.  Equity you pay for isn't profit.  It's the same money as the money you used to pay for it...it's just been moved from your Bank (and liquid), to somewhere under a floor board in the house (fixed...and dead).

If you let the Tenant buy your house for you, the total cost of the property to you is only the Down Payment.  When you start adding $7200 a year onto it, that is just adding unnecessary cost to you...that you must recover.  So, as far as "long term equity" is concerned, your tenant is already building that for you...for free.

So, if your cash flow is $7200/year, you will always be behind by what your DP was.  If your CF is less than $7200/year, every year you are falling behind by the negative spread between your $7200 extra payment and the Cash Flow...cumulative...added to the already behind Down Payment.  All of which, you must recover before you start making a profit.