Rental Property Investor · Las Vegas, NV · Member since 2019 · 10 posts · 2 votes
I have a rental home with approx. $87k remaining on the mortgage (6% rate, 20yr, currently at month 57 of 240). I will be receiving approx. $91,500 tax free; more than enough to pay off the mortgage immediately.
I want some advice/thoughts around the options:
KEEP INVESTING MONEY - Assuming a 6.6% return on investment over the next 5 years, invested in Total Stock Market Index, this value would be worth an additional $38,915 in growth or original capital ($91,000) and $18,000 from cashflow. This is assuming I continue to invest the $300 per month cash flow from this rental. TOTAL = $56,915 Additional dollars.
PAY OFF RENTAL + INVEST CASH FLOW - By paying off the mortgage, I will increase the cash flow to approximately $1000 per month. Assuming the remaining amount of cash I have from windfall ($4,500) plus the monthly cash flow ($1,000) in the same investments over 5 years; I have Gained a total of $60,000 from my renters, and $12,610 in growth in the same stock. Net $72,610 just from rental income and growth. This does not include the $23,480 in interest savings as well by not paying bank. Total = $96,090
Is the math as simple as looking at the two numbers($56,915 and $96,090) and seeing which is higher? Would I need to subtract the interest savings from the second number cause it isn't an actual gain? So $72,610?
This is all considering no vacancy or capital expenses....but I just want to leave those out for this exercise. We also don't need to think about tax implications at least for the next 5 years. Just trust me on this one.
Thanks ahead for helping me think through this one.
I have a rental home with approx. $87k remaining on the mortgage (6% rate, 20yr, currently at month 57 of 240). I will be receiving approx. $91,500 tax free; more than enough to pay off the mortgage immediately.
I want some advice/thoughts around the options:
KEEP INVESTING MONEY - Assuming a 6.6% return on investment over the next 5 years, invested in Total Stock Market Index, this value would be worth an additional $38,915 in growth or original capital ($91,000) and $18,000 from cashflow. This is assuming I continue to invest the $300 per month cash flow from this rental. TOTAL = $56,915 Additional dollars.
PAY OFF RENTAL + INVEST CASH FLOW - By paying off the mortgage, I will increase the cash flow to approximately $1000 per month. Assuming the remaining amount of cash I have from windfall ($4,500) plus the monthly cash flow ($1,000) in the same investments over 5 years; I have Gained a total of $60,000 from my renters, and $12,610 in growth in the same stock. Net $72,610 just from rental income and growth. This does not include the $23,480 in interest savings as well by not paying bank. Total = $96,090
Is the math as simple as looking at the two numbers($56,915 and $96,090) and seeing which is higher? Would I need to subtract the interest savings from the second number cause it isn't an actual gain? So $72,610?
This is all considering no vacancy or capital expenses....but I just want to leave those out for this exercise. We also don't need to think about tax implications at least for the next 5 years. Just trust me on this one.
Thanks ahead for helping me think through this one.
I don't have the numbers for growth rate, rental income growth rates, I do know your cash investment per month so I'll reverse engineer and pretend you get $300 cash flow per month instead :) oh and I don't have the timeframe so I'll just use your 5 year timeline, I'll also use the 22.7% growth rate in Las Vegas Rental market :) You can always plug in your actual growth based on your data points.
Option 1: Keep Investing Money
Assuming an initial investment of $10,000 and a monthly cash flow of $300, after 5 years with a 6.6% annual growth rate, the total money from Option 1 would be approximately $16,605.
Option 2: Pay Off Rental + Invest Cash Flow
With an increased monthly cash flow of $1,000 and assuming a steady annual rental income growth rate of 22.7%, after 5 years, the total money from Option 2 would be approximately $18,899.
Therefore, based on these calculations, Option 2 would catch up to Option 1 by the end of the 5th year.
Okay I am not a financial advisor/lender but that was a fun exercise. Please don't take my word for it and consult with a CPA/a financial expert :) Thanks for sharing. Always consider your risk tolerance- everyone is different-, your long-term goals, and the impact of those costs we intentionally removed and risks as well.
So if I had to make this decision today, I would focus on option 2. Choose the strategy and find ways to iterate and make it even better. Good luck and again nice to meet you!
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
3y
@Will Costello, why not use the money to acquire additional rental units using more loans!
This will get you more cashflow! Plus MORE market appreciation because you will own more real estate.
Also, you haven't considered the tax advantages of owning real estate such as depreciation. How much money you make is IRRELEVANT, its about how much money you KEEP after the tax man cometh! lol
I have a rental home with approx. $87k remaining on the mortgage (6% rate, 20yr, currently at month 57 of 240). I will be receiving approx. $91,500 tax free; more than enough to pay off the mortgage immediately.
I want some advice/thoughts around the options:
KEEP INVESTING MONEY - Assuming a 6.6% return on investment over the next 5 years, invested in Total Stock Market Index, this value would be worth an additional $38,915 in growth or original capital ($91,000) and $18,000 from cashflow. This is assuming I continue to invest the $300 per month cash flow from this rental. TOTAL = $56,915 Additional dollars.
PAY OFF RENTAL + INVEST CASH FLOW - By paying off the mortgage, I will increase the cash flow to approximately $1000 per month. Assuming the remaining amount of cash I have from windfall ($4,500) plus the monthly cash flow ($1,000) in the same investments over 5 years; I have Gained a total of $60,000 from my renters, and $12,610 in growth in the same stock. Net $72,610 just from rental income and growth. This does not include the $23,480 in interest savings as well by not paying bank. Total = $96,090
Is the math as simple as looking at the two numbers($56,915 and $96,090) and seeing which is higher? Would I need to subtract the interest savings from the second number cause it isn't an actual gain? So $72,610?
This is all considering no vacancy or capital expenses....but I just want to leave those out for this exercise. We also don't need to think about tax implications at least for the next 5 years. Just trust me on this one.
Thanks ahead for helping me think through this one.
I don't have the numbers for growth rate, rental income growth rates, I do know your cash investment per month so I'll reverse engineer and pretend you get $300 cash flow per month instead :) oh and I don't have the timeframe so I'll just use your 5 year timeline, I'll also use the 22.7% growth rate in Las Vegas Rental market :) You can always plug in your actual growth based on your data points.
Option 1: Keep Investing Money
Assuming an initial investment of $10,000 and a monthly cash flow of $300, after 5 years with a 6.6% annual growth rate, the total money from Option 1 would be approximately $16,605.
Option 2: Pay Off Rental + Invest Cash Flow
With an increased monthly cash flow of $1,000 and assuming a steady annual rental income growth rate of 22.7%, after 5 years, the total money from Option 2 would be approximately $18,899.
Therefore, based on these calculations, Option 2 would catch up to Option 1 by the end of the 5th year.
Okay I am not a financial advisor/lender but that was a fun exercise. Please don't take my word for it and consult with a CPA/a financial expert :) Thanks for sharing. Always consider your risk tolerance- everyone is different-, your long-term goals, and the impact of those costs we intentionally removed and risks as well.
So if I had to make this decision today, I would focus on option 2. Choose the strategy and find ways to iterate and make it even better. Good luck and again nice to meet you!
@Will Costello, why not use the money to acquire additional rental units using more loans!
This will get you more cashflow! Plus MORE market appreciation because you will own more real estate.
Also, you haven't considered the tax advantages of owning real estate such as depreciation. How much money you make is IRRELEVANT, its about how much money you KEEP after the tax man cometh! lol
Hi Kevin Thanks for your input. However, as I mentioned, we don’t need to get into why tax implications. It’s a complicated conversation about Solo401k ownership and such.
let’s just say my portfolio is robust enough in terms of number of doors.
in that situation do you have a reply to the scenario I listed and the two options I am considering?
I have a rental home with approx. $87k remaining on the mortgage (6% rate, 20yr, currently at month 57 of 240). I will be receiving approx. $91,500 tax free; more than enough to pay off the mortgage immediately.
I want some advice/thoughts around the options:
KEEP INVESTING MONEY - Assuming a 6.6% return on investment over the next 5 years, invested in Total Stock Market Index, this value would be worth an additional $38,915 in growth or original capital ($91,000) and $18,000 from cashflow. This is assuming I continue to invest the $300 per month cash flow from this rental. TOTAL = $56,915 Additional dollars.
PAY OFF RENTAL + INVEST CASH FLOW - By paying off the mortgage, I will increase the cash flow to approximately $1000 per month. Assuming the remaining amount of cash I have from windfall ($4,500) plus the monthly cash flow ($1,000) in the same investments over 5 years; I have Gained a total of $60,000 from my renters, and $12,610 in growth in the same stock. Net $72,610 just from rental income and growth. This does not include the $23,480 in interest savings as well by not paying bank. Total = $96,090
Is the math as simple as looking at the two numbers($56,915 and $96,090) and seeing which is higher? Would I need to subtract the interest savings from the second number cause it isn't an actual gain? So $72,610?
This is all considering no vacancy or capital expenses....but I just want to leave those out for this exercise. We also don't need to think about tax implications at least for the next 5 years. Just trust me on this one.
Thanks ahead for helping me think through this one.
I don't have the numbers for growth rate, rental income growth rates, I do know your cash investment per month so I'll reverse engineer and pretend you get $300 cash flow per month instead :) oh and I don't have the timeframe so I'll just use your 5 year timeline, I'll also use the 22.7% growth rate in Las Vegas Rental market :) You can always plug in your actual growth based on your datapoints.
Option 1: Keep Investing Money
Assuming an initial investment of $10,000 and a monthly cash flow of $300, after 5 years with a 6.6% annual growth rate, the total money from Option 1 would be approximately $16,605.
Option 2: Pay Off Rental + Invest Cash Flow
With an increased monthly cash flow of $1,000 and assuming a steady annual rental income growth rate of 22.7%, after 5 years, the total money from Option 2 would be approximately $18,899.
Therefore, based on these calculations, Option 2 would catch up to Option 1 by the end of the 5th year.
Okay I am not a financial advisor/lender but that was a fun exercise. Please don't take my word for it and consult with a CPA/a financial expert :) Thanks for sharing. Always consider your risk tolerance- everyone is different-, your long-term goals, and the impact of those costs we intentionally removed and risks as well.
So if I had to make this decision today, I would focus on option 2. Choose the strategy and find ways to iterate and make it even better. Good luck and again nice to meet you!
Thank you @Zen Lenon for helping with the math. The actual property is located in Edmond, OK, but doesn’t matter too much in the long scheme. I think our ideal situation is one that is allows us to make sure we aren’t in a negative place with a long term vacancy. In this case having no mortgage also takes that pressure away. And the math makes sense too!
Great to meet you and thanks for the help. Hopefully this post will help others in the future too.
I have a rental home with approx. $87k remaining on the mortgage (6% rate, 20yr, currently at month 57 of 240). I will be receiving approx. $91,500 tax free; more than enough to pay off the mortgage immediately.
I want some advice/thoughts around the options:
KEEP INVESTING MONEY - Assuming a 6.6% return on investment over the next 5 years, invested in Total Stock Market Index, this value would be worth an additional $38,915 in growth or original capital ($91,000) and $18,000 from cashflow. This is assuming I continue to invest the $300 per month cash flow from this rental. TOTAL = $56,915 Additional dollars.
PAY OFF RENTAL + INVEST CASH FLOW - By paying off the mortgage, I will increase the cash flow to approximately $1000 per month. Assuming the remaining amount of cash I have from windfall ($4,500) plus the monthly cash flow ($1,000) in the same investments over 5 years; I have Gained a total of $60,000 from my renters, and $12,610 in growth in the same stock. Net $72,610 just from rental income and growth. This does not include the $23,480 in interest savings as well by not paying bank. Total = $96,090
Is the math as simple as looking at the two numbers($56,915 and $96,090) and seeing which is higher? Would I need to subtract the interest savings from the second number cause it isn't an actual gain? So $72,610?
This is all considering no vacancy or capital expenses....but I just want to leave those out for this exercise. We also don't need to think about tax implications at least for the next 5 years. Just trust me on this one.
Thanks ahead for helping me think through this one.
I don't have the numbers for growth rate, rental income growth rates, I do know your cash investment per month so I'll reverse engineer and pretend you get $300 cash flow per month instead :) oh and I don't have the timeframe so I'll just use your 5 year timeline, I'll also use the 22.7% growth rate in Las Vegas Rental market :) You can always plug in your actual growth based on your datapoints.
Option 1: Keep Investing Money
Assuming an initial investment of $10,000 and a monthly cash flow of $300, after 5 years with a 6.6% annual growth rate, the total money from Option 1 would be approximately $16,605.
Option 2: Pay Off Rental + Invest Cash Flow
With an increased monthly cash flow of $1,000 and assuming a steady annual rental income growth rate of 22.7%, after 5 years, the total money from Option 2 would be approximately $18,899.
Therefore, based on these calculations, Option 2 would catch up to Option 1 by the end of the 5th year.
Okay I am not a financial advisor/lender but that was a fun exercise. Please don't take my word for it and consult with a CPA/a financial expert :) Thanks for sharing. Always consider your risk tolerance- everyone is different-, your long-term goals, and the impact of those costs we intentionally removed and risks as well.
So if I had to make this decision today, I would focus on option 2. Choose the strategy and find ways to iterate and make it even better. Good luck and again nice to meet you!
Thank you @Zen Lenon for helping with the math. The actual property is located in Edmond, OK, but doesn’t matter too much in the long scheme. I think our ideal situation is one that is allows us to make sure we aren’t in a negative place with a long term vacancy. In this case having no mortgage also takes that pressure away. And the math makes sense too!
Great to meet you and thanks for the help. Hopefully this post will help others in the future too.
You're most welcome! Now I understand the context a little bit more. Have fun with the process. It's a great prob to solve :)