STR pay-off or keep going

[Christina Hall]

We just purchased our 2nd STR and our 1st is a total cash cow. We have enough cash to pay off the mortgage on that 1st property and cash flow even more OR continue to invest that money into more of the same asset class, more STRs (we are getting better at scaling and managing but its still a grind). It's getting harder to get a good return in most markets- I run the numbers on properties daily, and will likely continue to be difficult in the coming years. In this scenario A) would you pay off your mortgage on the cash cow or B) be patient and continue to invest?

I welcome the conversation! 

*these numbers do not include any repairs or supplies, which is roughly 10% each month
** I expect our 2nd property to cash flow between 2-4k a month once we fully get it going  

[Joe Splitrock]

@Christina Hall given the highly inflationary environment, I would not pay off any debt. As strange as it sounds, low interest debt is an asset during times of high inflation. (You don't mention the interest rates, so I am assuming under 5%). Inflation came in at over 7% in the last year. The value of the dollar is degrading faster than interest you are paying.

Paying off the mortgage will increase cash flow, but you are buying cash flow. That means you are reducing your cash on cash return. You are better off taking that cash and investing it someplace else. That could be more short term rentals or even in the stock market. You could easily get 8% to well into double digit returns. So is it better to pay off a 4% loan and avoid 4% interest payment or invest that cash and get 8%+ return?

If the cash is just sitting in your bank account not earning interest, then maybe it is better to pay off the loan. Money needs to be working for it to multiply.

Congratulations on your success, but it looks to me you could amplify this and be doing even better. Good luck.