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Updated almost 7 years ago on . Most recent reply

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Hanan K.
  • Atlanta
38
Votes |
50
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Reinvesting cash flow or focus on principal pay down?

Hanan K.
  • Atlanta
Posted

Hey BP community! I would be very interested in your thoughts on feedback. Here's my question:

At what point do you believe it is wise to stop reinvesting your cashflow into more properties and start focusing on principal pay down on your current buy and hold portfolio? We just closed on our third rental, a SFR with a detached second home ( 2 rentals in one). Although we have a small portfolio, the value of the homes is almost 2 million dollars since we are in such a high price area. We have very stable cashflow and we both work full time jobs (though I do not need to). I'm wondering whether it's wiser to start saving for the next one or start paying down some of our homes. Our interest rates are between 3.5%-4.675% on the three rentals. Would love to hear your thoughts!

Most Popular Reply

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36
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Russ Smith
  • Rental Property Investor
  • Clearwater, FL
70
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36
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Russ Smith
  • Rental Property Investor
  • Clearwater, FL
Replied

The best way to answer this question is to know yourself.  Know your goals, know your investment objectives, and know your risk tolerance.  You seem like a pretty conservative investor, so don't let a super-leveraged investor tell you that you're making a bad decision by paying off debt.  Of course you can grow faster and achieve higher returns if you're willing to leverage up but you also have to sleep at night.  If your objective is to become the next Blackstone or Berkshire, then don't pay off debt.  If you just want a half a dozen free-and-clear rental properties to supplement your retirement income, then pay them off (especially if deals are hard to come by or the numbers don't make sense).

There are many people on BP that haven't been in the real estate game long enough to have weathered the 2007-2008 storm with substantial real estate holdings, so be leery of taking advice from these people when it comes to risk and leverage.  Everybody looks really smart when the market just goes up and up, but throw a 25% correction out there and many of these highly leveraged people will be busy dealing with foreclosure proceedings and short sale negotiations.  Then in a couple of years, Josh and Brandon can do a podcast with them and they can explain to you how they lost it all and had to start over.

Best of luck and do what works best for you!

  • Russ Smith
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