What should I do with Pre-tax profit?

[Matthew Chalfant]

I have a duplex that I am house hacking and just got the other side filled. I have received the first rent check from my PM after their management fee. It is $850. I do not yet have an LLC set up for the property and have been putting all of the money through a separate checking account set up just for that property and will move it to an account held by an LLC later on. The property is brand new and will be under warranty for the next 3 years, so I do not foresee needing to replace a roof or water heater in that time.

I have two ideas of what to do with the profit.

1. Just stack the cash in the account and save it for reserves and future deals. The obvious benefit is having more cash on hand for the business. This may become a better thing over the coming months with the COVID-19 situation developing.

2. Use the money to pay down a personal loan faster. I am in the military and took the Career Starter Loan from USAA upon commissioning. The current balance as of this writing is $14,920.07. The interest rate is 2.99%. The monthly payments are fixed at $458.03. I have 34 payments remaining. I can afford the monthly payments just fine with no real strain put onto my life or ability to support my needs. However, I would like to be rid of the payment sooner rather than later. If I take the $577 I am saving every month from the military and add it to the profit I will be able to pay an additional $1427 a month. This works out to:

1. 8 months left rather than 32
2. $413.16 saved in interest
3. $5,496 post-tax that I can save annually

There is no early payoff penalty.I know that I will always be able to pay the mortgage with my Housing allowance from the military so that is not a concern. I know that paying off the debt faster will be a load off of my back and make me feel good. Plus, I know that I will be able to save the money for other investments. My only trepidation is over the possible, although slight, tax repercussions. Thoughts?

[David Pere]

@Mathew, for what it's worth that loan is not worth paying off quickly (in my opinion). You can EASILY get a higher ROI investing that money elsewhere, and if I was you I would make minimum payments on that debt and build your cash reserves then save the additional capital in order to reinvest it.