Payoff Rental or Buy Another?

[Briette Awbrey]

Finance (and tax) wise, is it better to pay off my rental property within a year OR buy a new rental property within a year?

Things to consider (if they matter at all):

I just inherited $100,000.

I have a very young family & childcare is essentially a mortgage payment. So, income is important for the next 4 years.

I have another rental property that is fully paid off so I will net about $1,600/mo on it once I move out next month.

Below are the scenarios:

CURRENT RENTAL PROPERTY

Owe: $158,000

Interest Rate: 4.375%

Monthly Mortgage: $1,070 [$578 goes to interest, $323 to principal, $169 to escrow]

Monthly Rent: $1,650

Cash Flow +$510/mo

I can pay this off in under a year.

-OR-

BUY NEW RENTAL PROPERTY

Prices are high in my area so I may need to only focus on a condos for less renovation.

Purchase price, max $225,000, likely around $125/mo HOA

20% down @ 4.75% rate OR 25% down @ 3.625% rate – so I’ll go w/ the 25% down

Mortgage payment ~$1,025/mo

Down payment $63,000

Rental Income ~$1,300/mo

Likely I’ll make less than $300/mo

To me… paying off my rental property makes the most sense. But the majority of online advice I am seeing is to purchase another property.

Any advice is greatly appreciated!