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Updated about 3 years ago on . Most recent reply

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414
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Dan M.
  • Real Estate Investor
  • Unadilla NY
293
Votes |
414
Posts

Paying off primary home to increase cash flow?

Dan M.
  • Real Estate Investor
  • Unadilla NY
Posted

Dear community,

So I have a really weird idea definitely not the normal "strategy" and Id like to hear the pros/ cons from everyone regarding this. I'm selling, yes selling! not cash out refinancing and maximizing my leverage full tilt to be the richest man in the graveyard, one of my investment properties. With the proceeds I have the ability to pay off my primary home. For some ballpark numbers I'll be making 70k after the sale and capital gains is paid for. 

Now for my primary since I've held it for a while I only owe 70k. The P&I amounts to just over 900 dollars. That's 10,800 a year risk free folks. I have a HELOC open for another 3 years with no balance, that would convert to a 15 year mortgage if anything comes along and a balance exists at the end of year 3.

Current investment opportunities for buying an investment property , from a cashflow perspective, will yield me roughly 5600 per year.  Assuming tenants pay, not assuming appreciation or increased rents over time.

I could also loan money at ~11 percent, so roughly 7700 per year.

To me it makes alot of sense to just pay off the primary already. I'm looking at strictly cash flow. What are some thoughts preferably from people who have done the same thing, but I'm open to hear everyone's opinion.  Anything I'm missing here?

Most Popular Reply

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131
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Alecia Bolton
  • Investor
  • Seatac, WA
118
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131
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Alecia Bolton
  • Investor
  • Seatac, WA
Replied

From a purely cash flow perspective, paying off your primary makes sense, but it's not that simple.

I would look at your mortgage's interest rate.  If you pay off your mortgage, that's the return you're getting with the profit from the sale of your investment property.  Could you invest that $70k into something that has a higher percentage? 

I'm assuming here that your current mortgage is a low fixed rate for 30 years.  Which is usually pretty cheap money.  So if you're borrowing the money at 3.5%, and you can invest in something that has 8% returns, then you're earning 4.5% returns.

You're also losing any tax benefits for deducting the interest from your mortgage.

  • Alecia Bolton
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