Pay off existing rentals or get ready to buy more deals?

Question

I could have 6K a month cash flow after expenses from four rentals if I paid them all off. I can pay them all off and have enough to buy a small house outside the area to live in or buy an RV and travel the country. I don't NEED the cash flow now. I planned on grinding it out for at least 3 more years, possibly 8 if there is a downturn (likely) and buying opportunities are available. So why am I asking then you say? Because once I buy more rentals I won't be able to pay them all off without working a lot longer.There is a point where having that kind of money in paid off real estate is beyond good enough. Sometimes (like today) I feel like I want to drop out of the rat race and go live on acreage and just live off 2K a month (that's luxurious for me...) and figure out other things in my life better. Achieve mastery in other areas.But at the same time, leaving money on the table is another consideration. That's why I planed to keep working originally. Adding massive buffer. Plus if I keep buying rentals, the rents will go up over time far faster than the expenses such as insurance and taxes. Right now between principal pay down, cash flow (after all expenses) I clear 30K a year. It was much higher before but I re-balanced my portfolio.Maybe someone here has that one magical point that will sway me to one side or another.I just keep thinking to myself though, it's not always about more money, so much as keeping what you have. What if the bank calls the loans on my mortgages, etc. I figure have a nice 7 figure net worth, maybe I should cash out my chips and leave...

Jay Hinrichs · Answer

Jack as we age this becomes a real exercise.. for me its all about paid for assets. and limiting long term liablities.and well I jsut dont particularly care for the rental business in the SFR space.I prefer buying debt. or originating debt.. or doing value add like new construction.. but all of these things have some risk to them. I think a lot of it depends on where your rentals are /// quality of them.. potential to move up in value. and stability of the rental customers.. maybe U split it down the middle some how target one and pay it off .. and then see how it goes.but for me if I was going to rely on rental income to live out my days.. I would want them paid for and have fewer of them so i would not have you know like 30 roofs to worry about. etc etc. when i could get the same cash flow on 7 roofs if they were paid for.Or work into bigger asset class like a really solid B class apartment.. or a very nice MHP . etc etc

Mark Sullivan · Answer

I'd base it on your age and what impact that has on the things you want to do.Living in an RV, for example, isn't too different in your 20s vs your 30s. So if you're in your 20s, put that off for a while and keep working, maybe reward yourself with a nicer RV. Same example, if you're in your 50s, go do the RV thing now, b/c it's going to be harder to do so in 10 years... warm beds and running water will be a siren call to keep you from enjoying your RV experience.

Michinori Kaneko · Answer

Right but you said you need $2k per month. and you probably need that amount after tax. Do you manage those properties yourself of have a PM? If you have PM the amount of time you have to spend in the "rat race" should be minimal so you can go enjoy your life from a true passive income. Having more properties helps with diversification. if you only have 4 rentals, if one or two goes sour and are vacant for months, then you may not have enough $ to cover your expenses and stuff. If you had 15~20 maybe you'd be ok with having significant vacancy in few of the units. Just my 2 cents!

Jack B. · Answer

Yeah, I already know that conventional wisdom of numbers says to buy more and use leverage, you missed all of my other points. This isn't purely a financial decision. Cash flow currently is about 1K a month, a bit higher once I raise rents to market again. PP is about the same, for a total of about 30K a year, about 15 of which is cash flow.

Michinori Kaneko · Answer

question is how much are you cashflowing on those properties currently?You don't need to pay them off. as long as your rental can cover the mortgage and all other expenses and give you some additional cashflow for your personal life, you don't have to force yourself to pay them off. in fact, you should not pay them off so you can utilize leverage and invest any capital you have to buy other properties to generate additional cashflow. The loans you currently have are most likely lower interest rate loans than you can currently get, so take advantage of the lower interest rate