Selling part of portfolio to pay mortgage

[Zaid Badabwan]

Hello

I have bought seven units with 70% loan and now with higher prices, I can pay back my loan if I sell 3 units and this way I will have 4 units totally paid and available for cash refinance if real estate prices fall.

Is this a good strategy? Or should I just keep my mortgage and keep the seven units.

Please advise me with your good insights.

[Randall Alan]

Quote from @Zaid Badabwan:

Hello

I have bought seven units with 70% loan and now with higher prices, I can pay back my loan if I sell 3 units and this way I will have 4 units totally paid and available for cash refinance if real estate prices fall.

Is this a good strategy? Or should I just keep my mortgage and keep the seven units.

Please advise me with your good insights.

 We’ve been doing the same thing.  Had 19 loans.  We sold a couple of properties (that we liked the least due to neighborhood, turnover, etc) and used the proceeds to pay off other properties.  We also did several cash out Refi’s when the rates were low which allowed us to not only lower our rate, but also pay off additional properties with the cash out.  We are now down to 9 loans across 24 properties.
 Increased our cash flow, lowered our interest rates, and freed up Fannie Mae loan availability for future purchases.  
Win-Win-Win! 

As for you, I would look at how interest rates play for you.  With rates higher now , refi’s probably don’t make sense.  On the other hand, having 7 properties allows you more appreciation, depreciation and cash flow.  I would look at the net numbers… run the scenario both ways… selling versus holding.  The debt is really of little concern as your tenants are paying that for you.

I would look at net cash flow each way.  You also have to weigh how much effort it takes to manage them.  

As we paid off units we found our net cash flow stayed the same, as the appreciation in the properties allowed us to borrow more and pay down enough higher interest debt that we didn’t lose any income.  Plus, with a better interest rate on the new loans, our cash flow also increased as well (less interest expense). 

All the best!

Randy