Pay off rental mortgage or reinvest?

[Brandon Miller]

Hello next year I will be buying my first rental property. I wanted to get your opinion on paying off your rental property mortgage one at a time before buying the next rental or not? The way my numbers will work out is this time next year I should be saving a good amount per month so I used rough numbers to figure out when I could retire. Based on the method of paying off rental property before buying the next one for a $150,000 dollar home that rents for $1500, every time you pay one off the cash flow would grow from around (150-200) to (1150-1200) which you could then reinvest into the second property. Over the course of 15 years you could get 7 properties paid off making a pretty nice amount per year. I am struggling to see the benefit of just buying rentals and not paying them off because to get that much cash flow you would need around (35-47) properties which would take longer to save up and get that many? Am I way off here? Now I know 150-200 cash flow on a $150,000 puts me around 5% CoC return and I should be looking for around 12% but I am basing these numbers off what I can just easily see on zillow. Do I need to go back to the drawing board because I have missed something important here?

[Joe Villeneuve]

Paying off rental mortgages costs you money...it doesn't save you anything.  If those properties are cash flowing, then your tenants are paying it off.  The only cost to you is what comes out of your pocket.

Don't mistake total cost for your cost.  They are not the same thing.  The total cost isn't as important as how you pay for it.

If you buy a property all cash that cost $100k, that property cost you $100k

If you bought that same property with 20% down ($20k), and financed the rest. with a yearly debt service of about $5k/year over 30 years, the total cost for this property would be $170k...but your cost would only be $20k.

Your tenants are paying off your debt for you, and building up equity for you...and it's free.  Why would you want to pay for it if you don't have to?