Payoff fast vs. Accumulate fast rental property strategy. Help!

[Jonathan Mahan]

Hey real estate gurus,

I've got a math problem I could use some feedback on. Struggling between two plans. Please let me know what you think, and if there's a third option I'm missing, I'm all ears.

Current plan: Purchase homes as a 'primary residence' every time I move to avoid higher interest rates and higher down payments. Rent out the home when I move, and repeat. With all my leftover funds after bills, dump most of it into an extra payment on my lowest balance mortgage (equity prison is something I've heard of lately?) Allow paid off homes that are making rental income to cascade into faster payoffs for subsequent properties. Goal: Retire with 10 homes in good areas making reliable rental income, all mortgage free. With my current pace I can payoff a mortgage about once every 2 years. I have 4 homes currently and only 1 is paid off. 2nd house is still about 2 years out to payoff. I retire in 10 years. So, I'll barely make it to my goal if I stay incredibly focused. Upside: less liability overall, as I only ever have enough homes that I could pay if all went vacant at the same time. Downside: much slower progress attaining real estate. Equity prison and far less cash on hand for other investments.

Potential new plan I'm entertaining: Put a mortgage on my paid off home for cash, to use as down payments on investment properties. If I do that, I can buy three additional homes immediately...and rates are good right now! With this plan I wouldn't race to pay them off, but would focus more on generating cash flow with a large number of homes and use that cash for other things, while letting the homes appreciate naturally. Upside: More homes building equity sooner. More cash on hand for other things. Higher total number of homes (I could retire with 30+ homes with this strategy.) Downside: Much higher risk (bankruptcy if too many homes went vacant simultaneously), and a longer wait to reaching truly passive income with nearly a dozen mortgage free homes.

For perspective, I'm a military guy with very reliable income. Large family (5 kids.) I'd like to invest in an IRA for them and help think about college now while they're small. The money I'll get from retirement in 10 years will be plenty to take care of mom and dad, but the investment properties are designed to help the kiddos pay for college, weddings, etc.

I'm a bit new to Bigger Pockets and I'm a casual real estate investor...looking to get a bit more serious. I'm leaning toward my current, conservative plan. Payoff a mortgage every 2 years and slowly accumulate properties. Just means we live kinda...meager lives with all our cash being dumped into principle payments. I'm currently finding my self severely cash poor in a pinch, due to not being smarter with savings. 

Thanks in advance for your advice!

Jon

[Joseph Cacciapaglia]

This isn't a math problem at all. It's an issue of personal preference. You're definitely giving up return on equity by focusing on paying off debt, but you're also decreasing your risk and amount of work. You just have to decide which strategy you're more comfortable with. You could also split the difference by cashing out at a lower LTV and scaling up more slowly. One thing it seems you didn't consider, is that in some ways adding more properties is reducing your risk, because you increase your diversification. However, this reduction in risk doesn't nearly counteract the additional risk of the higher leverage, but it's something to keep in mind.