Own 9 properties & have 2 mortgages, should i snowball???

Question

So after reading about snowballing to payoff mortgages, Im curious if you would in my situation. I have 7 paid off rental properties grossing me $4800/mo. I have my main residence with $200k and 10 years left and a vacation home that I owe $230k with 29 years left. The vacation home is rented out at $3500/mo and I pay an extra $500 every 2 weeks on the mortgage.

I don't really need the income right now but im curious if I should be attacking both mortgages? 1 mortgage first then the other? Dont attack either bc money is cheap? Just looking for opinions here.

My thinking is take all of it and knock off the vacation home and then when thats paid off, use the money from all of them which would be $4800 + $2200($3500 gross rent - taxes-maintenance) so around $7000/mo to pay off my personal residence.

Or would you do neither and let the money build up for a year and then buy another cheap $50k or so rental home?

Steve Vaughan · Answer

Wow! Congrats on your suçcess, Danny!

I have a few paid off as well.  Here's the underlying theme for me- high rates,  high risk (adjustable, callable) and high hassle like annual financial reporting.

Mine was a commercial apt loan at 5.75% that was bothering me, followed by a 7.99% residential, then a 6.5% residential.

Next up are a couple 24yr seller-financed deals at 6%. I'm trying for early payoff discounts.

I'm not accelerating any fixed residential loan that doesn't bother me and is under 5%.  Too easy to beat that return.  What are your rates?

Austin Fruechting · Answer

With your medical going up a lot in a couple years, I would focus on acquiring more that cash flow. Potentially if you focus on purchasing more, you could have your entire medical expenses covered by the cash flow, and be building more wealth by having others paying multiple mortgages for you. Seems like that would be a win all around.

Danny N. · Answer

Thanks for all the insights. Actually I have way too much cash tied up and I'd like to better use it. My home is around $1.4M and I owe $200k on it. My vacation home is $650k and I owe $230k on it and my other 7 properties I paid around $450k for them but those are paid off. So I have a total of about $2M of equity id love to use in the best way possible to add more rentals. I have cash on in the bank too but id like to buy more rentals in the most efficient way.

John Thedford · Answer

Buy more! I am in a similar situation. Almost 2M in RE and owing under 200K. Time for a portfolio loan to buy something when it makes sense. Our market is insane at this time and I won't pay these high prices!

Steve K. · Answer

@Danny N.

Sorry to hear of your health challenges. I don't know anything about health insurance/Medicare, but sure seems like you should keep inquiring about how to appeal that decision by your providers/insurance.

We were discussing your topic recently, and you may benefit from reading pros/cons of using more mortgages  (leveraging) to grow wealth faster. I'm of the camp that is comfortable with some leverage.

(You have something like $350,000 cash tied up in your first 7 rentals. If you refinanced them (or part of them; your choice), the banks will let you take perhaps 75% loan-to-value. You could extract $262,500 cash (leaving 87,500 equity in them).....and the idea would be to go buy more rentals with that cash. (if you buy $65,000 houses with 20 or 25% down payment each, you could buy something like 10 or 15 more houses now. Or your new $127,000 purchase of 2 rentals; could be $32,000 down and the rest borrowed. Rates on non-occupied rentals are about 4.5% today. The idea is: your $320,000 and $127,000 cash into these properties is earning 4.5% yield to you. (saving you from paying 4.5% interest). If owning the new house(s) with 75% loans is a 10% or 20% cash on cash return, then you are growing your wealth faster with leverage. Many investors are attracted to this. Some are more conservative.

See here:

https://www.biggerpockets.com/forums/52/topics/448886-should-i-pay-off-my-home-or-buy-more-rentals

https://www.biggerpockets.com/forums/48/topics/443301-why-not-snowball-the-debt-on-real-estate-investments

https://www.biggerpockets.com/forums/48/topics/448603-paying-off-debt-first-or-start-real-estate-investing

Have you read, for just two successful examples, what @William Collins and @Austin Fruechting did in 2.5 years and 7 years, respectively, buy using "BRRRRR" method (maximum leverage)?

https://www.biggerpockets.com/forums/48/topics/429980-officially-financially-free-at-32----exciting-day

https://www.biggerpockets.com/forums/223/topics/445367-full-time-employee-multiple-brrrr-side-hustle-2875-to-goal

Steve Vaughan · Answer

We all have different goals of course, but paying early to only 'earn' 3-4% isn't for me. I can beat that passively in my sleep sipping whatever.  Paying down debt is never dumb, I just draw the line at 5% or hassle factor.

Dani Beit-Or · Answer

This is an excellent question, a rich man's dilemma.

First it all comes down to what is it you would like to accomplish next in your investing journey.

I'm a junkie of buying homes. The more the better.

I love the mortgeages we can get in this country. Cheap rate and un indexed - an amazing gift to the borrower.

Unless your are an older person who needs cash in your life I'd buy more rentals and let the rent pay them off.

Pablo Mendez · Answer

Wow, great position to be in. Congratulations. I am a noob so my advice is limited. The way I would think about it is... if worst case scenario happened and I had a mortgage on my vacation home and on my primary home... and I had to loose one of them... which one would I loose?I'd rather loose the vacation home... and be safe in my free and clear primary home. this does not take into account numbers and interest rates etc, just an exercise in the feeling of comfort. Having a paid off, free and clear primary home must be such an amazing feeling. I would feel relaxed and comfortable and would be able to really focus worry free on growing my real estate.

Steven D. · Answer

Lots of good information provided here only thing that I would add is always focus on the highest interest rate debt if your plan is to pay down debt. With the low interest rates that you have I would go for more properties as the gains you expect to be higher then the current rates that you are paying. I think you are in a good spot though and would completely understand wanting to take the "safest" route of being free and clear of payments when you have other reoccurring life expenses hitting you every month. Best of luck!

Own 9 properties & have 2 mortgages, should i snowball???

Most Popular Reply