I hate having mortgages

[Mark Dutton]

Hey everyone, I’m a novice investor and I’d appreciate some advice or insight on my situation, even though I know everyone’s circumstances are different.

I’m currently 27 and will soon have three rental properties along with my primary residence. Once I close on my next house, I’ll have about $900K in debt. To be honest, this feels overwhelming, especially knowing I couldn’t pay it all off quickly if I had to.

Out of that $900K, about $500K is tied to 30-year mortgages on my rentals, with interest rates ranging from 2.99% to 4.375% and 400k on primary at 6% 30 year.My total monthly mortgage payments are $5,500 on my rentals, and my long-term rental income is $6,850, giving me a monthly surplus of about $1,300. I’ve been saving that extra income for future property expenses or emergencies, so I don’t have to dip into my personal funds.

I also earn around $130-150K annually from my sales job, though sometimes I feel anxious about whether I deserve this income or worry about losing my job. Despite the income, I still feel like I’m over-leveraged.

Has anyone else felt this way as a beginner investor? How did you manage these feelings or concerns about being over-leveraged?

[Mike Fingleton]

Hey Mark,

I totally get where you're coming from. I remember when I was first getting started in real estate, I had similar feelings about being over-leveraged. It’s easy to feel like the walls are closing in when you see those big debt numbers stacking up. But from the numbers you shared, you’ve got some really solid things going for you here.

First off, your rental income is already covering your mortgage payments with a nice little surplus, which is a great position to be in. That $1,300 a month buffer is your safety net, and trust me, that’s going to be a game-changer if any unexpected maintenance pops up or you need to cover a vacancy for a month or two.

Now, about that feeling of being overwhelmed with debt..I had a client once, let’s call him John, who felt the same way when he hit the $1M mark in mortgages across a few properties. What helped him was really focusing on the long-term strategy. Mortgages aren’t necessarily a bad thing, especially when they’re tied to assets like real estate, which generally appreciates over time. Plus, with interest rates like 2.99% and 4.375%, you’re essentially borrowing money at a really low cost, especially in today’s market where rates on new loans are much higher.

One thing John did that helped ease his mind was to focus on building up reserves. He kept 6 months' worth of mortgage payments for all his properties in a liquid account.. just in case something went sideways. That cushion made him feel less anxious and more in control. From what you’ve said, it sounds like you’re already building up reserves, which is exactly what I’d recommend. You might even think about bumping that up a bit if it would help you sleep better at night.

Another thing to consider is leveraging your extra income from your sales job. I know you’re nervous about losing that job...who hasn’t had those thoughts? But with your income level, you have an opportunity to either pay down your primary mortgage a bit faster (the one at 6%) or reinvest in something that could boost your cash flow, like improving your rental properties or maybe even adding another one at a great deal. From what I’ve heard, rates like yours are considered low in today’s market..

Real estate is a long game. My advice would be not to rush into paying off all your mortgages at once, especially when the cost of borrowing is as low as it is for you on your rentals. Let your tenants pay those down over time while you continue to build wealth through appreciation and cash flow. You’re building equit every month, even if it feels slow right now.

Also, if you ever want to chat about specific strategies or even just vent about the stress of it all, I’ve been there, and I’d be happy to share more of what I’ve learned along the way.

Hang in there;you’re doing beter than you think!

- Jasper / Pat Aboukhaled

Turning investment visions into REALITY in Phoenix, AZ - Ranked #1 for residential real estate growth and opportunity by PwC

-Pat