Small but mighty vs expanding the portfolio

[Jon Thomson]

Alright looking for some insights and opinions. I have a low price SFH LTR. I owe $84,000 on the mortgage. It currently cash flows $300 a month on a $1200 a month rent. Debating on what strategy to use as I try to grow my portfolio. Asking for the plus and minus of these 2 options.

Option 1: Save cash and pay off mortgage. Thought is triple+ cash flow with just one insurance, maintenance, and management cost. Take out HELOC on property and use that to continue to invest.

Option 2: Purchase additional properties and build portfolio 

I know that there are some tax implications to no having the mortgage payment to consider. Other then that I'm wondering on the downside of option 1?

Please share any and all thoughts

Thank you!

[Kristine Ann]

Overall I think paying off a mortgage isn't the way to go.  You have to pay the entire thing off before you see any change in your cash flow. If you had 84k laying around it would be a different matter.  

I would get a heloc set up either way if you qualify and have the equity for it. There's no reason not to get a heloc. You only pay on it if you withdraw the money. It's great because it opens up options.  You can save it for when you have a large repair or a vacancy.  Or can you use it for another investment.

[Travis Timmons]

Keep on scaling with adequate reserves until you hit your point where you no longer want to grow. At that point, start stabilizing the properties, proactively spend some cash on big ticket items (roof, furnace etc. that you know are coming due) or upgrades, then start paying them off. Make sure you don't go too fast and keep the proper reserves, but start to get that snowball rolling downhill rather than paying the first one off.

Returns on real estate without leverage just aren't worth the hassle. An index fund is a better option...eventually, I'm a fan of paying them off and treating them like fixed income, but not now assuming that your financial house is in order and you like owning and managing real estate.

[Alecia Loveless]

@Jon Thomson I’d keep scaling with careful consideration to your reserves and funds. I’m currently scaling and working on growing my portfolio. I’ve gotten considerable appreciation building lots of equity. I pay a small extra amount towards the principal of the mortgages from the cash flow each month to help speed the process along.

I view real estate investing as a long game. While I’ve made great strides I expect it will be at least another 5-10 years before I get even close to where I want to be.

[Lynn McGeein]

@Jon Thomson You didn’t mention what your current mortgage rate was but no sense paying down or paying off a low rate mortgage just to then borrow from the same property at a much higher rate.

[Gregory Schwartz]

Maybe you use the cashflow to pay down the principal and then use your personal income and savings rate to grow the portfolio. 

I ran some super rough numbers on this here calculator

 (https://www.americanfinancing.net/mortgage-calculators/extra...

$300 additional each month should drastically decrease the time it takes to pay off your mortgage. 

A very low risk way to grow your portfolio. 

[Jon Thomson]

Quote from @Lynn McGeein:

@Jon Thomson You didn’t mention what your current mortgage rate was but no sense paying down or paying off a low rate mortgage just to then borrow from the same property at a much higher rate.

 My rate is 7.5% so the difference would not be much either way. Good point though. Thanks for the input

[Jon Thomson]

Thank you all for your input. I should have also mentioned that I am currently flipping to grow capital for investment. That was what I intended to use the HELOCs for as well, not longterm loans. Also I am investing more for cashflow. My W2 has a good retirement and I don't plan to try to leave it. I'm investing for cashflow and wealth asset growth.