Buy more or pay off?

[Michael Chewning]

Hello

New to hear so perhaps this is one thats been answered a lot.

We will be closing on our 3rd rental property in a few weeks. 

- 1 SFH that was our original primary that the mortgage is underwater on so we kept and rented, Still underwater 4 years later but same Tenants

- 1 SFH which I own free and clear through an Self Directed IRA (these funds are locked up since it a retirement account, cannot combine them with personal funds, lots of fun legal rules), owned 1.5 years, same tenant. Was meant to be a flip but was just taking to long to sell and began running into financing issues. Seems to be going pretty good now though after some rough mistakes.

- New Rental SFH - Being purchased with 20% down conventional investor loan

We also have our primary home which is a conventional loan.  We have pretty stellar credit so the mortgage companies/broker are happy to deal with us. My wife and I are both in our early thirties so plenty of time to retirement. We would like to keep our rental portfolio growing but we debate quite a bit back and forth if we are better off focusing on paying down the 3 loans or finding another property when we have the down payment. 

Any help, guidance, suggestions, recommended readings or tips would be appreciated. 

Thanks,

Mike

[Trevor Ewen]

@Michael Chewning 

Welcome.

This is a debate we often have in my home. In short, I believe it's a matter of preference. Here's a good quote from Burton Malkiel's: A Random Walk Down Wall St.:

J.P. Morgan once had a friend who was so worried about his stock holdings that he could not sleep at night. The friend asked, 'What should I do about my stocks?' Morgan replied, 'Sell down to your sleeping point' Every investor must decide the trade-off he or she is willing to make between eating well and sleeping well. High investment rewards can only be achieved at the cost of substantial risk-taking. So what is your sleeping point? Finding the answer to this question is one of the most important investment steps you must take.

When it comes to loans, I believe in the same 'sleeping point.' Depending on your comfort level, it may be 1, 2, 10. 

It may also be good to do an analysis on what properties may be sold for gain, or are just costing too much for what they provide. Getting a loan off the books may be as simple as eliminating the weakest of the 4 properties.