Paying off properties early....love it or hate it?

[Pat Jackson]

I've read a lot of the forum posts, blogs, and am on podcast 131 (working my way through them), and paying off properties early vs. paying them off over the life of the loan seems to be a fairly divisive topic.  Before I go any further, I'm talking about 30 year conventional mortgages, not hard money, portfolio loans, etc.  I'm also primarily interested in buy and hold investing.

On one side you have the folks that say don't do it.  Reason's I've retained:

1. Minimize your own cash in a deal.
2. Use someone else's cash to buy a property (the bank) and another person's to pay off the loan (the renter).
3. Buy more properties (simplistic example: buy one 100k property cash, or finance four 100k properties).  This is likely the case, though can be more risky.

On the other side, paying off a mortgage early:

1. Pay off a property and increase cash flow.  I understand some people claim this is a terrible idea.
2. Less risk.  Jay Hinrichs points out in podcast 222 that one should pay off their properties sooner than later, in case something unforeseen/bad happens, you have multiple (good) exit strategies.
3. You can leverage your properties. This is something I'm really excited about. I'm in the process of getting a HELOC with PenFed Credit Union, 80% LTV. I'll be able to borrow more cash than I have put into the place.
4. The no good, terrible, very bad banks (joking) get less of "your" money in interest?

Right now I'm interested in either paying off a property completely, or doing delayed financing and having no cash in a deal. I'd like to buy another house and get it paid off asap, that would give me ~200k in usable HELOC cash between my primary residence HELOC and two investment properties.

That's just me.  What do others like to do, pay it off, or ride the mortgage wave?

[Thomas S.]

"On the other side, paying off a mortgage early:"

1. Paying off property reduces cash flow based on it's opportunity value. @10% investors lose $833/month for every 100K in dead equity. High price to pay to purchase phantom cash flow.

2. High risk. If markets turn you lose your cash. IF it's mortgaged you lose their cash. Easier to walk away without loss.

3. Again high risk, better to hold your cash available outside of real estate. Instead of paying down mortgage place money in accessible investment vehicle. Better returns that prevailing mortgage interest rates.

4. If bank account or dead equity is the best you can do with your money you are a terrible investor and should not be risking your money in real estate.

Individuals that park their cash in real estate earn next to no actual returns compared to investors that leverage. A property that can not show positive cash flow with a hypothetical 100% financing will never show true positive cash flow no matter how much cash is thrown at it.

If you are only interested in "playing it safe" put your money in a savings account.