Advice needed on current investment path forward

[Kevin Douglas]

I completed a successful BRRRR a little over a year ago. I have some cash and I'm trying to decide if I should pay off the mortgage and enjoy the extra cashflow or if I should keep the cash I have in bonds. Obviously, the decision I make should be based on my goals, blah blah blah, but from a ROI perspective, I'm curious about your thoughts on and Analysis. Below are the details:

Property Value: $480,000

Mortgage Ballance: $297,516.83

Interest Rate: 7.1%

Rental Income: $4,365

PM: 8%

Repairs: 5%

Regular Payment: $2,900.36

 - Principal: $258.74

 - Interest: $1,774.23

 - Tax & Insurance Impound: $867.39

Current Cashflow: $897 (Annually $10,764)

Cashflow if mortgage paid: $2,930 (Annually $35,160)

Payback period on mortgage payoff: ~8.5 years (assuming no rental increases) 

Return: 8.19%

What am I missing / not thinking about? (note I'm not including vacancy because the units are in a very desirable location and below market rent, the last turn I had was less than 2 weeks)

Would you pay off the mortgage or put it in a 4%+ short-term bond? 

[Jason Bohling]

@Kevin Lee If between just those 2 options, I would pay off the mortgage. However, first ask yourself if you have ample reserves for capex, repairs, essentially a large enough buffer to weather a bad ‘storm’ or two. If not, build those reserves first. Then pay off the mortgage. With those two options you are choosing between guaranteed returns and the mortgage payoff is higher, plus it reduces debt which means it reduces risk plus you will have higher cash flow in a few years.

The only upside with the bonds besides the guaranteed returns is the level of safety by having the money liquid in an emergency. If you have those ample reserves, this gives you both the safety in an emergency coupled with the higher ‘return’ from paying off the mortgage. So, that is what I would do if I was you. Hope this helps and good luck to ya whichever way you go.