Retire on cash flow or cash out refi every 5-7yrs

[Justin S.]

I’ve talked to a few people with different takes one this question.  If I’m looking to retire on my rental income, should I try to pay off properties ASAP and live off of cash flow or not worry about paying them off and just cash out refi every 5-7yrs and live off of that(assuming the rents can sustain the mortgage and expenses) 

[Greg Scott]

I dislike both of those ideas.

A paid-off rent property is a bad idea for a number of reasons. First, it is a lawsuit target. Second, you aren't maximizing either your cashflow or your ROI. Assuming you are in one of the many markets in the country where you can buy cashflowing properties, do the math. If you are buying them right, you can always get higher cashflow from more leveraged assets than fewer paid-in-full assets. Finally, with a few paid-in-full properties, you won't have enough depreciation expense to offset your cashflow. You will pay tax on the cashflow and you wouldn't with leveraged assets.

Living off of cash-out refis is an absolutely terrible idea.  Do you really want to be running out of cash and find, due to factors beyond your control, there is some sort of financial crisis and you can't get a loan?  Your financial empire will come crashing to the ground.

I'd just keep building your portfolio, growing with reasonable leverage and cashflow until you reach the point where our cashflow exceeds your expenses.  Its the safest and most sure way to financial freedom.