Which property to pay off 1st?

[Jason E.]

I bought a few single family home rental properties this year.  They are all financed with 30 yr fixed rate loans with different interest rates of course.  I was wondering what factor should I consider on deciding which property I should apply my extra cash flow to pay off first??  Should I pay off the one with the highest interest rate or the one with the total interest paid over 30 years???

[Joe Villeneuve]

I agree with @Cal C. .  Pay off the higher interest rate first.  It will have the greater impact.  Actually, I'm not sure why you're using your cash flow to pay off anything.  If it were me, I'd be thanking my tenants for paying off the two loans for me...and using the cash flow for something else.  Most early payoffs take only 7 years +/- off the length of the loan...at the BACK end.  What you're describing is paying more per month until you refinance or sell the house.  Why?

Let's say you held the house for another 7 year before you refinanced (typical).  If you put $50/month for those 7 years you'd be paying your principle down only $4200.  That might save you a total of 200-300 in interest.  Early payoffs for your own home are great.  Early payoffs for investment properties are good only for the lender.  That's why they push all these fast payoff terms on us.

Look at it this way.  Assuming you're 25 years old, 30 years from now you'll be 55...and in theory you'll have these properties paid off.  Now what?  I bet you look back and think you'd rather have dones something different with that extra cash flow. 

Joe Villeneuve
REcapSystem
A2REIC