Pay off rental or buy more?
I am trying to decide what I should do. Most of the advice I receive is to first build up a good portfolio of properties before even thinking about paying them down. Leverage being the most common advice I was curious if my money would be spent better with another approach.
I currently have a rental that I owe about $81,000 on at 5% interest. I have a property I just put under contract that will yield me about 10% annual ROI for my $34,000 down payment. Out of curiosity I found an amortization calculator that allowed me to enter a lump sum payment to see how it would change my term and interest paid. The details are below:
Lump sum payment: $34,000
Interest saved: $43,764
Payments saved: 158
If I take the payment I will save I will ultimately generate 158 months cashflow instead of paying my mortgage payment (minus escrow of course).
Cashflow from saved payments: 158 x $498.13 = $78,704.54
Total cash saved or earned from $34,000 lump sum payment = $122,468.54
So now if I take the total term of the loan I am referring to that is 283 months. Dividing the $122,468.54 into that gives me $432/month. Multiplied by 12 = $5,193 / $34,000 lump sum = 15% annual ROI.
I know there are additional benefits to the 2nd property such as tax deductions and appreciation, but besides those is there any reason why I would pursue 10% over 15%?
Go easy if I missed something obvious. I'm still pretty new...