BP Experts-Help me figure out pros/cons of getting from 1 to 2

[Joe M.]

Hey Experts. 

Im looking for opinions on how to view a friend's position, pros/cons and ways to think of their next step. Due to his first rental being his old primary, there is quite a bit of equity in it. It would be about the same amount to either pay off the loan on it (3.85%) or put a 20% down payment on another rental. For big picture, he is not looking to grow a huge portfolio, so slow, steady, and conservative are fine by him. I am not sure of tax implications if paid off, and I also assume he can open a HELOC to either get a down payment, or even pay for next rental in full.

So if you were in his shoes, would you pay off the mortgage OR use that money to buy rental property #2?  How would you be looking at this?

[Mark H. Porter]

I would never pay off a mortgage, always use other people’s money at these rates.  I would refinance, take the money and buy something, then use the 20% that he was going to put down and buy a third property.