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Updated almost 4 years ago on . Most recent reply

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Norma Contreras
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New investor, pay your mortgage or start investing?

Norma Contreras
Posted

Hello all, 

I am new to this community, and I want to ask the more experienced investor out there, I am a new investor, I want to start with a duplex/fourplex but wondering if is better to payoff my mortgage before start the real estate investment journey? also would love to network, really looking forward to learn and contribute to this community!

  • Norma Contreras
  • Most Popular Reply

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    Dan M.
    • Real Estate Investor
    • Unadilla NY
    293
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    Dan M.
    • Real Estate Investor
    • Unadilla NY
    Replied

    @Norma ContrerasOne thing that you can do is get a HELOC that doesn't charge any closing costs. Then when the deal does arrive you can pull the trigger and make a higher return on your money. However having the peace of mind with a home paid off is priceless but the more you hammer your mortgage down the more money in your HELOC will be available when you do ultimately close on it. I consider any extra money I put towards my mortgage a "risk free investment" because it is guaranteed to give me a small return on the interest I no longer have to pay on that chunk of money and will be higher than current bond prices.

    Oftentimes people will say to invest and take the higher return, but in this case if you don't owe that much on your home you can actually make MORE money in terms of cashflow by paying it off.

    Example - I owe about 70k left on my home. If I pay it off I immediately get 900 / m cash flow from principal and interest no longer going out the door. I'm not sure of any investment that for 280,000 that would make guaranteed 900 a month in cash flow. However, despite of this fact, I personally invested strong this year and opted to not pay out my primary residence for higher returns than the 3% interest after tax. Though from a cash flow perspective it is constantly on my mind and certainly I will pay off my primary eventually and have a HELOC open to fund any deals that come around.

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