Investor · Dayton, OH · Member since 2016 · 4 posts · 1 vote
Hello all,
Two questions.
1. How does investing affect your credit score overall. It seems that constantly applying for a mortgage (thus resulting in multiple hard credit checks) and carrying a large amount of debt would severely damage your credit score and make it harder to get loans. Thoughts?
2. I have heard some say that you should pay off your primary residence first, and enjoy the tax benefits on the interest accrued from your rental property mortgages. However, if you continually buy houses, live in them for a few years, and then move/rent them out, this doesn't exactly apply. Is it still a good idea to pay one rental off at a time, then pull that extra income into paying off your second property, and on down the line (debt snowball)? Is there a better strategy that anyone recommends?
Is it still a good idea to pay one rental off at a time, then pull that extra income into paying off your second property, and on down the line (debt snowball)? Is there a better strategy that anyone recommends?
You will get varying answers on this one. Ultimately, it depends on your comfort level and how much debt and risk you are willing to carry.
Regarding apply for mortgages and your concern with multiple hard credit checks, the way to get around this is using private money instead of obtaining financing through banks. Traditional banks are only ONE source of financing. There are many other sources.
Is it still a good idea to pay one rental off at a time, then pull that extra income into paying off your second property, and on down the line (debt snowball)? Is there a better strategy that anyone recommends?
You will get varying answers on this one. Ultimately, it depends on your comfort level and how much debt and risk you are willing to carry.
Regarding apply for mortgages and your concern with multiple hard credit checks, the way to get around this is using private money instead of obtaining financing through banks. Traditional banks are only ONE source of financing. There are many other sources.
1. If you are rate shopping, typically your credit is only really hit once because FICO sees a number of pulls in a short time and makes assumptions. Also, credit inquiries only count for up to 10% of your score, and only for the past 12 months. Read more here.
2. This goes into your personal philosophies, time, and risk acceptance. Mathematically, using leverage results in higher returns. Realistically, it also results in more doors and more tenants! Do you enjoy the business? Do you have enough free time? Do you get freaked out about what could happen if a tenant leaves, the market changes, Hillary is elected, or solar flares destroy the orbiting brain lasers? As your portfolio increases, the impact of your leverage is magnified (both for good and bad). For me, I love RE, enjoy dealing with tenants, want to expand, and just saying the word leverage makes me breath faster. Not so with others. Do a deep dive and see what fits your life and go with that.
Investor · Monroe, WI · Member since 2015 · 691 posts · 610 votes
9y
If you are actively trying to acquire multiple properties, paying off a rental property does not make financial sense because with todays low rates of 4% or so, if you can make a higher return elsewhere, you should do that instead of paying off the debt, personally I don't think I will be paying any of my properties off except my primary because I'd rather not have any free and clear properties due to likelyhood of being sued because you would be a target plus I like to live by the motto "Control everything, own nothing". Having multiple mortgages will affect your credit in a positive way as long as you make your payments on time 100% of the time.