Low income: Pay off existing mortgage, or purchase another?

[Tyler Cruz]

Hello,

5 years ago I purchased my first income property (separate from personal residence). 1-2 years after purchasing it, my business crashed and I stopped earning income - I only make a miniscule amount right now, only able to save around $5,000 a year, and I don't see that changing.

I'm in the final stages of refinancing my mortgage right now, and it got me wondering if I should be trying to pay off my income property's mortgage, or look into utilizing the equity in it to purchase another one, whether that be through a HELOC, Cash-out refinance, or some other means.

I will provide my numbers below. Where I live, it's hard to get any real cashflow from a property - earnings come primarily from appreciation. There was a real boom right after I purchased my property (some years were as high as 30%), but then the government imposed a lot of very strict purchasing and lending rules (I live on Vancouver Island, and Vancouver had skyrocketing house values which trickled in over here) which grinded that growth to a halt. And now because of COVID-19, things have really slowed down (+0.1% appreciation over last month, +3% from a year ago, +15% from 3 years ago).

My property's cap rate is 3.28% (value: $430K, income after property management fees + maintenance: $19.9K, insurance, utilities, property taxes: $5.8K (NOI: $4.1K). Taking the property management fees out and raising total monthly rents by $150, it'd be 5.8%).

I currently owe $118K on the mortgage. 2.5% 5-year fixed rate is what I'm about to get in my refinancing.

I have $70K sitting around in my bank account, of which I'd only want to use maybe $30K of, as I need a comfortable buffer, to help with down payment, closing costs, paying down the morgage, etc.

And so, I'm wondering if I should focus on paying down existing mortgage, or possibly look into buying another income property (if it's even possible with my non-income). I purchased this one for $274K 5 years ago, and it's worth $430K now. But who knows what the market will do in the future - I don't think things will climb like they did before due to the government regulations, but who knows.

I just hate the idea of all that equity sitting around in the property and not doing anything with it.

I should mention that if purchasing a 2nd income property would only be slightly better on paper over paying off the existing mortgage, that I'd prefer to pay off the mortgage as it's less stress, and I have medical issues so I like to live as stress-free as possible.

Thank you guys - BiggerPockets was the main reason I purchased the first property.