Pay down primary or invest

[Tanner Marsey]

Trying to decide what my best move is and would love BPs opinions. I am about to sell my first rental property and I should walk away with about 125k ish after all taxes and fees.

I own my primary residence that I bought just over a year ago with an FHA loan. Wondering if I should take the profits from the sale and pay down my current mortgage to the 20% mark and refi it. I will eliminate PMI (just under 400/month) and take advantage of the lower interest rates (which feds are rumored to lower again in the near future). This could decrease my monthly payment by about 7-800 dollars/month with about 60-70k invested. Still leaving me a decent chunk of change to grab one or two more properties.

Or do I take that 125k and buy four or five properties in the 100k range?

Thanks for any input. It’s appreciated.

[Dave Foster]

@Tanner Marsey, @Ryan Huggins is painfully right.  CA is  very nasty place to sell something taxable.  And even though theiir CA clawback on the 1031s is horrible also.  It's nothing compared to the amount you'll be paying in tax.  So my first inclination would be to do a 1031 as well.

But wait... Your proposed path of paying down your primary to get rid of PMI and refi with a 20% + down payment also has some very strong merits.

1. I agree with @John Clark, an investment in restructuring the debt on your primary is indeed an investment.  You're looking at spending $60-70K to reap a savings of maybe $700/month.  Thats a very real impact on your life as if you took the $60 - $70K and invested it in something that returned 12% to you.  That's not to be taken lightly.  In addition to that an investment in shoring up your primary is an investment in security also.  I've seen so many folks crash and burn when they outrun their supply trains of investment and decide to throw in the primary to continue their pace of investing.    Losing sleep over investment property is a whole different thing than losing sleep over your primary.

2. Don't be surprised if there's not much left after the primary pay down and not enough to leverage into another investment property on it's own.  You've got to consider those pesky taxes.

3. But I still think the primary pay down might be a good move for you.  In particular if you added this twist - Use all of your cash from the sale to pay down the primary and then do a no cost HElOC with one of the big banks (I'm doing one with 5/3rd right now and they're paying all closing costs, appraisal and title insurance for a prime float.  Just thinking out loud but what if you put everything you could into that heloc so that you had margin.  Every dollar you could pay down saves you prime plus it's available if you want to do some investing with it down the road.  The caution of course is getting caught in a hyper inflation situation.  Or even more deadly - using the heloc for anything other than maximum paydown and investment for cash flow.