Want More Cash Flow? DON'T Pay Off Your Rental Property
Рет қаралды 52,677
Күн бұрынCalculate whether you should keep, refi, or sell in MINUTES with Property Llama: go.propertyllama.com/bp/
You want more cash flow, so you ask yourself, “Should I pay off my rental property?” In one word: No. Do NOT pay off your mortgage early on your rental property. But how does that make sense? Wouldn’t eliminating your monthly mortgage payment immediately increase your rental property’s cash flow? Yes, but you could be walking away from something that’ll make you more cash flow than a paid-off rental property ever could.
Chris Lopez is back on BiggerPockets to explain why paying off investment property is actually a BAD idea. Chris shows how not paying off your rental properties and using that money for something else can explode your cash flow and allow you to be MUCH richer in retirement. Using Property Llama, Chris calculates cash flow for three situations: Selling and 1031 exchanging your rentals, paying them off, OR reinvesting the money in something else. Wanna see how Chris increased the cash flow on this viewer’s portfolio by over fifty percent? Stick around!
Is paying off rental properties the wrong move for cash flow? If you were in the same situation, which option would you choose? Let us know in the comments below!
Make the best money-making moves in real estate with EASY scenario modeling from Property Llama: go.propertyllama.com/bp/
~~~~
Join BiggerPockets for FREE 👇
www.biggerpockets.com/signup?...
~~~~
Find an Investor-Friendly Agent in Your Area:
biggerpockets.com/agentmatch
~~~~
Find Investor-Friendly Lenders:
biggerpockets.com/findlenders
~~~~
Property Manager Finder:
biggerpockets.com/findapm
~~~~
DON’T Do a 1031 Exchange in 2024 ($1,000,000 Mistake):
• DON’T Do a 1031 Exchan...
~~~~
Watch More “Keep, Refi, Sell” Episodes:
• Keep, Refi, Sell
~~~~
Should You Pay Off Your Rental Property, Reinvest, or Buy More in 2024?
www.biggerpockets.com/blog/on...
~~~~
Seeing Greene: Is Paying Off My Mortgage Early a Mistake?
www.biggerpockets.com/blog/re...
~~~~
Connect with Chris on BiggerPockets:
www.biggerpockets.com/users/c...
00:00 Don't Pay Off Your Rentals?
01:56 Sponsor: Property Llama!
02:45 Current Portfolio Numbers
04:56 Option 1. 1031 Exchange
06:47 Option 2. Pay Off Properties
09:20 Option 3. Reinvest
11:23 Keep Your Mortgage!
12:14 Best Option for Cash Flow?
15:55 Comparing All 3 Options
@Teolulz Ай бұрын
interesting take but there are a few things missing: 1.when cash-on-equity was calculated, what was the amount of equity used? $700K or $1.2M? 2.investing in bonds, high yield saving, private lending only gets these high yields in the current high interest rates environment. 3. the incomes you get from the above, with the exception of some types of local gov bonds, are taxed at income rates at both the state and federal level. but rental income is tax free due to depreciation. 4. annual appreciation is a benefit that gets ignore. at 3-5% annually it more than offsets inflation, something none of the investments in 2 provides.
@katieheinsohn3081 Ай бұрын
Love that you are taking real comments and real life examples! I thought "swap until you drop" was really the only option.... LOVE that I will have options! Thank you
@BVel92 Ай бұрын
Ya but at 71 id rather cash flow on properties I own out right 100% than owing banks money and knowing when I die I owe absolutely nothing to no one.
@BuildingWealthWithRealEstate Ай бұрын
That's great you have the clarity! Every investor has a different plan. That was my plan in my 20's, now in 40's that's no longer my plan.
@alicechodkowski4066 Ай бұрын
This was an awesome explanation of all aspects of RE. It really clarifies different options. Thanks.
@BuildingWealthWithRealEstate Ай бұрын
thank you!
@kailashsaravanan8551 Ай бұрын
Great video, relates well for any RE investor even though it goes through a specific scenario. Also, the general path advice at the end of not using cash for more rentals, but something else like lending, makes a lot of sense today because of high rates. Return on Equity is a great concept I only heard from Chris a while ago. More from Chris!
@BuildingWealthWithRealEstate Ай бұрын
thank you!
@mg.1680 Ай бұрын
I’ve been looking for a video like this. I have a similar scenario so thank you! The only concern I have is paying taxes again after reinvesting (eg private credit). If I pay off the other mortgages, I can still leverage the tax benefits in real estate.
@netkev92 Ай бұрын
Nice video. The interface looks good for comparing scenarios. I like the comparison of asset classes. My family is uncomfortable in RE, and many here don’t like much but RE if the comments indicate. Picking a better game is how I’m accelerating my income growth.
@JasonJFlippingLife Ай бұрын
You forgot the option to tap as much equity in all the rentals as possible and reinvest that in new rentals. That would give you more cash flow than any of the scenarios you ran.
@BuildingWealthWithRealEstate Ай бұрын
Like a cash out refi? Two issues: 1) It's hard to make that work today at 7%+ rates. It worked great in the previous market cycle. 2) he wants to simplify! leverage and new rentals doesn't fit his goals
@JasonJFlippingLife Ай бұрын
@@BuildingWealthWithRealEstate He has a ton of equity in his rentals. Both the one's that are paid off and the one's that are partially paid off. Max that equity out in a loan and buy good cash flowing rentals. He can pay cash for them or leverage his cash with a mortgage or diversify that cash with some rentals and some in the passive income play you mentioned.
@ImJoegath Ай бұрын
Cashing out equity seems unlikely to equal or surpass his current cash flow and is likely not what he’s interested in given his age.
@bravedream Ай бұрын
High yield savings is not going to be forever. Probably 3 more years at most. Buy multi family will get higher ROI for sure for long term
@BuildingWealthWithRealEstate Ай бұрын
I agree about higher ROI, but retirees often just want income. Plus a lot of RE investors are investing in debt funds 8-12%
@richard9827 17 күн бұрын
You scenario is me exactly. Thank you for your analysis
@jeffmitchell257 Ай бұрын
Great video, but how do we factor in risk and potential future changes in the interest rate environment? If someone sells all their cash flowing real estate and dumps the proceeds into treasuries, but then interest rates drop to zero again then they are in trouble. It also would seem to carry less risk with direct ownership in a cash flowing rental versus lending out a hard money loan to someone who couldn’t qualify for a mortgage.
@williamlyons3947 Ай бұрын
Good advice. Like your videos!
@travis7974 Ай бұрын
More videos like this please!!!
@reidervin9714 Ай бұрын
Agreed, I think it relates to a larger audience.
@BuildingWealthWithRealEstate Ай бұрын
@@reidervin9714 thanks guys!! Any topics in mind? We are planning out the next few months
@travis7974 Ай бұрын
@@BuildingWealthWithRealEstate Maybe build to rent vs Purchase analysis. But I think if we can get more real world scenarios like this video it would help. Also, Househacks across different unit types analysis. For example, 1-4 units and even when more than 4 units would make sense (maybe 4+ would never make sense but it would be nice to hear the reasoning behind not doing it). Condo Conversion analysis/discussion would be gold!
@Mark213la Ай бұрын
Is this video to help someone or to advertise your product
@kahledalbert1210 Ай бұрын
This video is how to overcomplicate life. If you can pay off your mortgages DO IT. Paid off he makes an extra 50k a year.
@NiceGuyDan08 Ай бұрын
It's not overcomplicating anything, it's a different perspective, which is fine. The general point that this person is making is that the person paying off their mortgage could probably be making more money doing something else with their money instead, like investing. It's not that complicated of a point.
@reidervin9714 Ай бұрын
I understand you view but I think it is also wise to view the earning potential on every dollar. If a paid off property only provides a 3% return then why not just sell and put all that money in a HYSA that returns 4.5%. I thought it provided a great comparison but completely understand your point as well.
@Omoloya1 Ай бұрын
He states this near the end, 😉☀️
@edwinvonborstel3405 Ай бұрын
Investment properties offer great tax breaks as well, write offs
@BuildingWealthWithRealEstate Ай бұрын
Well it all depends! There's also risk and real liability with owning rentals. your savings account or SP500 fund can't sue you or cause $50000 in prop damage. Risk / reward
@delontamcclain4571 Ай бұрын
WOW !!! this is a great strategy
@seanbrownsociety Ай бұрын
Does the credit fund start paying immediately? Is it monthly? What's the risk?
@davidaizuss8481 Ай бұрын
Shold the conclusion therefore be sell all the properties and invest the money elsewhere for most cash flow? Why keep any of the properties if the conclusion is invest the money elsewhere for more cashflow?
@jacobyatako Ай бұрын
No he's talking about when you're completely done looking for growth and shifting entirely to income
@davidaizuss8481 Ай бұрын
@@jacobyatakoexactly, with those low cap rates, and with wanting to prioritize cash flow and not caring about growth anymore, why not just sell all the properties and move the money elsewhere? Even 10 year treasuries would provide higher cashflows than a 3-4% cap property.
@BuildingWealthWithRealEstate Ай бұрын
According to the spreadsheet, yes, sell everything. But I'm not a fan of 100% spreadsheet logic. Sell the least favorite properties to reinvest.
@EtienneKotey Ай бұрын
This allows for diversification but people forget that the goal is to be the bank and not have to do physical work so being a hard money lender is ideal while keeping property just in case. especially if you're done growing and ready to just collect checks
@amag15amit Ай бұрын
I have a different perspective. Maybe I am wrong. Please clarify. What if, you bought these properties in the last 1 -2 years with a high-interest rate mortgage. In that case, would you not rather want to pay off the mortgage itself. That way, not only are you increasing the Cash flow, but you have also canceled out lot of your amortized interest, resulting in probably more than half a mil in interest-dollar savings. Once you have captured more cash flow with free and clear properties, decide if you still want to grow more or live happily after that.
@BuildingWealthWithRealEstate Ай бұрын
Yes, great perspective. He didn't buy them recently. In your scenario, yes you would tackle this differently. It's worth looking at the interest savings, but understand that has an opportunity cost as well.
@805manny805 Ай бұрын
Does he need more income? Or want it? At that age it might make sense to hold as a legacy play and trigger a step up in cost basis and end of life.
@BuildingWealthWithRealEstate Ай бұрын
Simplification is the main goal. Great point on the stepped-up basis. Some investors leave the rentals to kids, but if the kids aren't the game, it's setting them up for failure. Many landlords liquidate and then simplify. Some of the best deals I bought are from inherited properties!
@NikolayPiter Ай бұрын
Спасибо, отличное видео! ❤ побольше бы таких
@edgonzalez186 Ай бұрын
I don't consider return on equity as a reliable measurement for investment. Equity is a value similar as gold (nothing you can do about it, until you sell). For real estate investing, or any businees whatsoever, ROI is the one that lets you have the temperature on how your investment is doing; and lets you make decissions based on cash flows. We should think about the money we put in, the leases, operational costs and our debts.
@BuildingWealthWithRealEstate Ай бұрын
There is no perfect way to measure or perfect metric to use. They all have their pros and cons. My issue with ROI, is that using money today based on an investment I made 10 years ago isn't a reliable way to look at it. Plus you have opportunity cost with equity. I think that's the real thing to measure. When big investors make trades, they are 1031ing and looking at equity performance too.
@edgonzalez186 Ай бұрын
@@BuildingWealthWithRealEstate I get your perspective, and probably you're in the correct (my experience-unts is small-time). Maybe I'm too focused on cash flow, and like that I don't have debt service payment. Been analyzing acquiring, but when I do numbers; my cash flow increase is not that appealing... the only positive is more assets... although more debt. But I got to act somehow.
@billstephens5472 Ай бұрын
What about factoring in depreciation Recapture?
@HigherEd987 Ай бұрын
@buildingwealthrealestate Can you comment on all the depreciation that will have to be recaptured if he does not sell.
@billstephens5472 Ай бұрын
@@HigherEd987 There is no depreciation recapture if he does not sell! Just depreciation expense which is tax deductible.
@798125 Ай бұрын
Is the private credit fund you’re talking about a fixed rate or is it inflation adjusted? Most of these private credit funds are for five or 10 years so if the return is fixed, inflation could have a big impact on your return. Did your calculation include adjustment for inflation?
@BuildingWealthWithRealEstate Ай бұрын
I was referring to a real estate debt fund. Most pay a fixed rate between 8-12% and are usually liquid after one year
@MaximusBlack Ай бұрын
Not a big fan of this advice for a 71 year old looking to uncomplicate things. Doing a hard money loan comes with risk and if he doesn’t want to take over a defaulted property that requires time and money then this could back fire. Risk is something that needs to be factored in and even more so at retirement. Not everything is a math question. Trying to maximize cashflow is fine but is the extra points worth the risk at that age? Only he can say. This is advice I wouldn’t give him.
@BuildingWealthWithRealEstate Ай бұрын
Totally agree about factoring risk/reward. That's why many investors aren't buying rentals now. Not a great reward. You're right about the foreclosure headaches. I was referring investing in a debt fund as investor. The hard money lenders handle the sourcing of loans, underwriting, draws, and foreclosures. Industry standard is a 2-3% foreclosure rate. Most of them end up being profitable for the lender.
@MaryLawson874 10 сағат бұрын
The financial crisis is primarily the fault of the Federal Reserve, which gains indirectly from bank failures, bank-owned real estate, and even more affordable cars. Production cannot be printed, but printing credit is acceptable as long as it is printed. Is that right or wrong?
@blipblop92 Ай бұрын
To maximize rental income, only invest when rate is low
@Thehharrison Ай бұрын
I disagree, low rates mean more competition. To maximize income you create value, typically difficult in a low interest environment
@kailashsaravanan8551 Ай бұрын
There's no one-size-fits-all answer like that. It's always a tradeoff between interest rate and property prices.
@Jsitun Ай бұрын
@@Thehharrison THIS, so much.
@BuildingWealthWithRealEstate Ай бұрын
Two things. 1) You'll be waiting a while for rates to drop. The 2010's were an anomaly. 2) Good investors will make money in all market cycles by understanding trends and pivoting with the market. Prices are crashing in commercial and rates are going up. Good time to be the bank and buy commercial assets.
@equinox219 Ай бұрын
What app is this ?
@BuildingWealthWithRealEstate Ай бұрын
Property LLama
@TEFgolfer11 Ай бұрын
Good video Chris, appreciate the scenario breakdowns and logic behind your thinking. A lot of whiners in the comments... Pay them no mind
@BuildingWealthWithRealEstate Ай бұрын
Thanks! Can't win 'em all!
@HellHappens Ай бұрын
Very cool video, just hate clickbait titles lol
@BuildingWealthWithRealEstate Ай бұрын
I'm glad the video at least delivered! :)
@gordonmack7766 Ай бұрын
This video should be called "how to lose everything in the event of a market downturn"
@BuildingWealthWithRealEstate Ай бұрын
How so? I'll see if BP wants to split test that title!! 😂
@tublin4940 Ай бұрын
He could also reinvest his funds into NFTs to get triple digit returns. Am I being hyperbolic? Yes. But my point is the advice was to reinvest his money in a strategy he likely has no experience in. It’s always a good idea continuously educate and to shift your strategy with the market. But at 71 years old, my guess is that’s not what he was after.
@hugogonzalez3610 Ай бұрын
Too much bla bla bla, pay you rental and go get another one. Easy
@Hawk2phreak Ай бұрын
No one is forcing you at gunpoint to watch.... Or to be a grump. He took time to provide content for free. Don't be that guy.
@BuildingWealthWithRealEstate Ай бұрын
@@Hawk2phreak Thank you!
@BuildingWealthWithRealEstate Ай бұрын
It's a little harder now at 7% rates when cash flow and growth are low
@hugogonzalez3610 Ай бұрын
Dont mean to be disrespectful is just the title if the video, confusing im 20k away from paying one of my rentals, what im supposed to to do? Dont pay the mortgage anymore? Nooo pay and go find another fixer upper or something.
@moviehipster Ай бұрын
You ruined this headline. You bored everybody to death. Can you cut that bullcrap down to 2 min, and enlarge the chart, so we can see it on a smart phone. Come on, who wants a financial root canal.
@BuildingWealthWithRealEstate Ай бұрын
Great advice on enlarging the chart. Sorry you thought it was too long, but when I'm talking with clients who are moving a $1mm... they want a financial root canal. If I make it short, I get yelled at for not going into details! ha
@moviehipster Ай бұрын
@BuildingWealthWithRealEstate make two videos, one short, condensed, the other long form
@RedLightAction Ай бұрын
This is bad advice
@BuildingWealthWithRealEstate Ай бұрын
What would you recommend?
@RedLightAction Ай бұрын
@@BuildingWealthWithRealEstate Pay the home off and keep it. Stocks and bonds can fall short.... $0. I've never seen a home or property valued at $0. Have you?
@donald5674 Ай бұрын
😂
@BuildingWealthWithRealEstate Ай бұрын
@@RedLightAction Not go to zero. But I have seen people get sued and go bankrupt. Stocks don't do that. Plus, i get your perspective, that was mine when I started awhile back. As people get older and wealthier, many liquidate their portfolios for lifestyle options too. Talk with landlords in their 60s, they've grinded for decades and often want a different path. Every year, I see investors liquidate 20 rental, put them in bonds and retire to Hawaii. Don't forget about the season of life for investors
@aaronpi4493 15 күн бұрын
Wrong, when everyone defaults on their mortgages during the next great depression he will go broke. I hope he does not listen to you
@natenoodleman Ай бұрын
Let me save everyone 18 minutes: Long winded dumb advice. He doesn’t want to invest his money somewhere else… he’s interested in real estate. You’re saying, “take your money out of real estate & what has been working for 70 years, and go put it into lending” 😂 Lending money & the private loan business has its own unique challenges and risks. That’s a completely different topic and video. The guy is 71. He wants more cash flow. You proved that paying off the houses = more cash flow (and also more peace of mind in his 70’s) this video could have been a 1 minute KZfaq short.
@BuildingWealthWithRealEstate Ай бұрын
I understand your argument, but when people get older, I've seen so many investors liquidate their portfolio. The cash flow and risk just isn't worth any more
@mda0214 Ай бұрын
Dumbest advice ever
@BuildingWealthWithRealEstate Ай бұрын
What would you recommend?
@mda0214 Ай бұрын
@BuildingWealthWithRealEstate sorry about that commented before watching the entire video. What you said sounds like a good idea especially if he had life insurance to back him
CNBC Television
Рет қаралды 65 М.
The Knowledge Project Podcast
Рет қаралды 732 М.
Coach Carson
Рет қаралды 2,1 МЛН