Rental Property Investor · Memphis, TN · Member since 2020 · 27 posts · 5 votes
I am trying to figure out what the best plan for me. I currently have 1 property I own that I rent out 2 rooms for a total of $1100 a month plus a 1/3 of electric and wifi. Additionally I have a rental property I inherited with my brother that I rent for $1450 a month. I am buying my brother out for 50k using a home equity loan against my personal home property. And that should leave me with an extra 35 left over in home equity loan. My home still has a 98k mortgage left and originally we planned on paying it off in the next three years. But we also have some stocks that I want to liquidate in the next month to take profit. I am curious whether it would be smarter to use the money to pay off my home sooner and take the 14.5% ROI or invest in a rehab home for rental for cheap in Memphis and get another property started for rent. Thoughts?
@Taylor L. Thanks my brother said the same. Just thinking I'd like to get rid of roommates sooner
I totally get that. I hate having roommates and thus having roommates is not a part of my strategy! Sometimes we make choices because of preferences and not the raw numbers, and that's totally fine!
@louis hamric Sounds like you are in a great position because you have multiple options to choose from, likely all of them will work out well. My suggestion would be to evaluate what leads to a greater long term cash on cash return. Paying off a mortgage at 4-5% may be nice since it will increase cash flow on that property, but likely a fixer up rental will bring you much higher returns over the long run. My vote would be to purchase another rental!
How do you believe that paying off your home is a 14% return? Your "return" on paying down your home is your interest rate, so probably 3-5% is your return there.
Also, why would you pay off the mortgage when you just took a home equity loan? That loan probably has a higher interest rate than your mortgage. That should get paid off first.
@Andrew B. I am including the money I make from rent on roommates
Renting the property and paying down the mortgage are two unrelated activities. You have a return on the money used to pay down your mortgage, which is equal to the interest rate. Then you have a separate return on the money invested in the property.