Should I Pay Off My VA Loan Quickly or Keep Leveraging Debt?

Question

Context:

I’m seeking advice from those experienced in real estate investing and financial freedom strategies.

I recently bought a multi-family property in Newport, RI, using my VA loan for $695K. I'm no longer house hacking, and all three units are rented out, generating a total of $8,200/month in rental income. My monthly payments (mortgage, insurance, taxes) are roughly $3,600, leaving me netting about $4,600/month.

I have four years left until military retirement, after which I’ll have a pension, some disability income, and rental income from this property. This setup alone feels like a solid foundation for financial freedom.

Here’s my dilemma:

While I understand that my mortgage interest rate is very low (2.8%) and there are tax benefits to carrying the debt, I’m wondering if it might make more sense to aggressively pay off the loan. If I pay it off, I could maximize cash flow earlier, reducing financial stress and allowing me to focus on other ventures or simply enjoy life more.

On the other hand, I know some people advocate for keeping cheap debt and using the extra cash to invest elsewhere for potentially higher returns.

Why I’m leaning toward paying it off:

Security: No debt = peace of mind.

Financial freedom earlier: A fully paid-off rental would give me a significant monthly cash flow?

Retirement simplicity: Fewer financial obligations as I transition out of the military.

Questions for the group:
1. Is it worth keeping this debt for the tax benefits and low interest rate, or would you focus on paying it off ASAP?

2. Are there better ways to leverage this property or extra cash flow to accelerate financial freedom?

3. Has anyone here retired debt-free, and how has that impacted your life versus maintaining debt for investing

Looking forward to hearing your thoughts and experiences!

Nathan Gesner · Answer

Read a few books on real estate investing to learn the power of leverage. I like the Unofficial Guide to Real Estate Investing. Here's a fundamental explanation to get your juices flowing:

Assume a house costs $200,000 and rents for $1,500. The market appreciates 3% per year.

Pay cash for one house and rent it for $1,500. After five years you'll have earned $90,000 in rent income and gained $34,000 in appreciation.

Buy four houses with $50,000 down on each. The mortgage payment is $1,000 on each house, so you earn $500 per house or $2,000 monthly. After five years, you'll earn $120,000 in rent income and $136,000 in appreciation. You've earned $132,000 more by splitting your money and leveraging it.

Kenneth Joseph Perfido · Answer

Thanks for your response everyone. Very very helpful.

Wale Lawal · Answer

@Kenneth Joseph Perfido

From my experience, you’re in a great position with your Newport property, strong cash flow, and a low 2.8% interest rate. Paying off the mortgage can provide peace of mind and simplify retirement, while keeping the debt allows you to leverage your funds for higher returns through investments. A balanced approach often works best—consider splitting your cash flow between paying down the mortgage and investing in diversified assets. Revisit your strategy annually to adapt to changing goals and market conditions.

Good luck!

Derek Brickley · Answer

Hey Kenneth!  First all, thank you for your service and kudos for making that sacrifice to househack it's definitely paid off!

As you mentioned, the benefit to paying it off is the peace of mind and simplicity.  You wouldn't need to keep an eye on other investments, just focus on the one and maximize your cashflow.If I can make a suggestion though...I might be wrong, but I don't think you started househacking to take the simple route.  A lot of people who househack do so as a basis for a strong financial future and to build generational wealth and financial freedom.  At 2.8%, you have an opportunity to leverage the cashflow you get now to invest in other areas (you already mentioned this too).  If it were me, I'd invest it into another property (or multiple leveraging further).  If growing the portfolio isn't the route for you, then the market is still a great hedge to diversify (S&P returns 8-10%/year on average).  OR even less risky is investing in bonds/CDs, etc. Those can still return 4-5% on your money and is without really any upkeep or risk.  I'm not a financial advisor, but this is how I think about my portfolio and maximizing my wealth.

Zack Karp · Answer

@Kenneth Joseph Perfido It really comes down to math and future goals. And one simple question...

Are you going to buy more investment properties, or invest in any way, in the future?

If the answer is yes, then it's a no brainer to make minimum payments on your 2.8% interest rate mortgage, and use the funds that you would have paid extra to pay it down faster, to either invest in more real estate, the market, or anywhere else where you can get a ROI > 2.8%.

If the answer is no, then feel free to aggressively pay it down as fast as possible, to become debt-free faster, and just have a large amount of money in savings or to splurge with.

The bottom line is that your 2.8% mortgage is GOOD debt. IF, you are being smart with your money. If you have no desire to actively pursue other investments where you make more than a 2.8% return, then by all means pay it off faster.

TYFYS and best of luck!

Should I Pay Off My VA Loan Quickly or Keep Leveraging Debt?

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