@Christian McPherson You are making some good moves financially. Living below your means so you have money to invest, and attempting investments (sfr and vacant land) will, if nothing else, give you hands on education. Ultimately my advice boils down to doing three things 1) understand your investor personality (risk tolerance, goals, resources, etc.), 2) develop a plan to meet these goals, 3) sticking to the plan, compare investment choices you have that are most likely to achieve goals (as @Brian Rossiter says its all math). Beyond this I am going to ramble a little.
First, let me do a little back-o-the-napkin math with some guesses. Both homes might be a great appreciation play (Billings is a stable increasing market), but I don't like to bet on the market, lets just focus on cash returns. 50% rule says you are will pay about $800 of rent on expenses. Taxes and insurance (part of the 800) are buried in your $988 payment, I am going to guess about 240. So Rent 1595 - 800 expenses - 748 loan (not incl. tax&ins) = $47. Cash ROI =47*12/50,000 = 1.1%, amortization (you are probably paying 200 a month on principle with minimum payment) = 4.8%. You are making 5.9% on the 50k equity and most of this is adding equity which you can only get at if you refinance and pay fees (or sell). This actually is not bad with the potential for appreciation, but not great compared to other opportunities. However, to take advantage of other opportunities you need knowledge. What you will learn running this rental for the next year or two will be priceless.
Now, assuming you have $1000 a month from income to put toward investing. If you pay down the loan on your rental you earn 4.5% with no additional appreciation benefit (in fact your appreciation is less magnified when spread over the equity you have in the place). This is low risk, but low liquidity investment, with tax disadvantages.
If you pay down your primary residence loan, you will earn 4.125% for the next 40-50 months, then the additional $150/mo savings will add 3.6% (considering 50k basis). 7.8%, not bad, but that is on the tail end, initially just 4.125. Also, consider the missed opportunity cost over the next four years. This also is low risk, low liquidity and tax disadvantages
If you stack up those dollars and look for other deals??? Deals exist (yes even in Billings, I have seen them) where a $20,000 downpayment can get you 8% cash return, 8% amortization, all profits tax deferred, and the potential for appreciation.
I don't really have advice, just trying to give you a framework for comparison. Really all this is step 3 I mentioned above. If, after taking a good look at your investor personality and developing a strategic plan, you could find that you would prefer a very safe but slow building investment. I have a colleague that hates bank financing and tries to do everything all cash. On the other hand I love bank financing and 30 year fixed at 4.5% makes me tingly. Nothing wrong with either approach as long as you take a good self assessment and have a plan.
