Debt Free...what to do next

[Lance Thibault]

Recently found BiggerPockets.  First post.  I have not yet intentionally bought an investment property.   

13 Years ago we moved from our house of 6 years into another home. We kept the first home as a rental and paid it off a few years ago. I will be paying off my home in June. I have no other debt. I probably have less then 2 yrs until I retire from active duty. My wife invests in TSP. I don't invest in the market at all anymore. The plan in my head is to continue buying 1 property (not opposed to it being multifamily) as long term rentals and pay them off as quickly as possible (every 4 years or so). I'm not entirely opposed to saving the cash to buy in full...however, that cannot be the case for next property as I'm looking to buy this summer. It would be a condo out of state for my daughter to rent from me while she attends law school and then hold that condo as a near campus rental. I do not have an exact property in mind yet. I have a feeling I'll be buying this property at market rate, so not a great initial investment property purchase. Looking for thoughts.

Also, on a bit of a side note. I read that starting in 2018 HELOC and home equity loan interest is not tax deductible if used for property purchasing. But then I also read that people are still using these methods for investment home purchasing. Is this just to get the property quickly and then the buyer refinances to a conventional loan?

[JD Martin]

Originally posted by @Lance Thibault:

Joe, no I don't understand.  Please explain how the property owns me?  When I retire from the service a couple years from now, I have no stress to find a job to make sure I can pay my mortgage(s)...as I won't have any.  This is freedom to me, so I don't see how I'm now owned by my property.  

 Generally, financially speaking, you are taking money and making it dead by turning it from liquid to illiquid assets, wherein your rate of return is more or less whatever prevailing mortgage rates are (right now 2.5-3.5%) minus tax benefits. Yes, there is a trade-off in that you don't owe a mortgage, but if the property can't rent and pay its own mortgage then it is probably a poor "investment" anyway. I get that there's a sense of security in paid-for properties - I have a bunch of them so I'm not on the opposite side of the street from you - but you never really own a property anyway, in that you will pay property taxes & insurance forever, so it's not as if you don't have to come up with money to service the property (leaving out PM, maintenance, capital expenses and other repairs). Most investors feel they can earn a better return than 2%.

I get where you're coming from. Your plan was my plan a bunch of years ago. Then one day I ran some numbers and figured out that paying off my primary was going to net me about $350 per month of cash flow, wherein if I took that same money and invested in rental properties I could probably exceed that - and I have, by magnitudes of order.