Paid off property, looking for our best option to finance the next one

[Alex C.]

Hello! We (me and a 50% partner) recently paid off our first property (a rental duplex). This one was financed by putting 25% down around 10 years ago. We paid extra to pay it off early. The property is now in the name of our LLC. We are probably around average I would say as far as risk tolerance (leaning more toward more conservative if anything). As our rental income is building up in the bank account now, we are wondering how to finance the next one. We could do what we did before and just save up a down payment -- I'm sure we'll actually have enough before we're ever able to find a good deal again :) But we are wondering if it would still make more sense, if we're able, to use equity in our first one for the down payment. Is one option clearly better for any reason? Thanks, and I look forward to hopefully getting more involved on here if we're fortunate enough to have things start to snowball over the years into additional properties! We are very happy with how this first one has gone!

[Stephen Akindona]

@Alex C. I think there is more info we would need to give you good feedback. Neither approach is wrong but it is all about your goals and objectives and maybe your age. If you’re younger, then theoretically you have more run way to take on “good” debt to aggressively grow your portfolio. If you are a bit older then for you it might be wiser to leave you equity untouched as you might want to reduce debt obligation as you get older. As a general rule I would always say it is better to get a return on your equity rather than leaving it sitting in a property you own free and clear. Without knowing much about your goals my general advice would be to tap the equity and use that equity to purchase more real estate. The only thing I would guard against would be over leveraging I would try to maintain at least 25% equity in my portfolio at all times.