Should I Pay Off My Rental Property or Make Minimum Payments?

Рет қаралды 22,227

6 жыл бұрын

We explain the pros and cons of both approaches through this practical example! Find out what strategy is better if you want to create wealth, understand the importance of leverage and amortization, and learn how to speed up a debt payoff to preserve and protect what you've built.
My name is Matt Theriault. When aspiring, frustrated investors are stuck in the proverbial “rat race,” they come to me.
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Пікірлер: 85

@minimumwagemoney3258 4 жыл бұрын

I own 3 pay off prosperities making me $3750 monthly income. My house that I live in is also paid for. I am now retired. Took me 14 years to get all 3 properties paid off. I’m 36 years Old

@EpicRealEstate 4 жыл бұрын

Congrats! 14 years. Great story. What's next for you?

@minimumwagemoney3258 4 жыл бұрын

I’m officially retired but I’m saving 100% of my income from the properties. My wife and I are living off her teacher income and we are completely debt free. I’m about 2.5 years I’ll be able to buy another properties outright. By that time my wife can quit her job and we can just enjoy life.

@EpicRealEstate 4 жыл бұрын

@@minimumwagemoney3258 So good. Thanks for sharing.

@bjjfreak8261 4 жыл бұрын

where are these properties if you don't mind me asking?

@minimumwagemoney3258 4 жыл бұрын

All in California. 2 properties in Atwater and 1 in Merced.

@EdwardHeavrin Жыл бұрын

the one thing this ignores is that 5 properties is 5x the work and 5x the problems. I've got 5 doors (a duplex and triplex) and it currently feels like I'm at my maximum threshold for dealing with the inevitable issues that arise. If I were to get 5 more it would probably become more of a job than I want. I have decided my next move is to pay them off in 5 years instead of getting more units. It's def a conservative move, but I think I'll sleep well knowing they're paid for. THEN I'll probably have the appetite for more.

@EpicRealEstate Жыл бұрын

If you’re happy with that, I’m happy with that. Thanks for watching.

@willtorres431 Жыл бұрын

Great, great, great video. Investor here with 11 yrs experience, retired at 25. If you're watching this video and are nervous about getting into real estate, DO IT. Just remember, in real estate you only make your money when you BUY the property. So always always be careful to not overpay for a property. Anyhow, awesome video, straight to the point. No bs.

@anthonydooley224 5 жыл бұрын

Personally, I prefer to get more cash flow dollars than more cash flow %. $7200 is more than $2025 with zero risk of foreclosure. Tax advantages of interest is not a dollar for dollar return. You still get appreciation and depreciation on a paid for house. More cash flow allows you to save up cash faster to put on the next house. There is a limit on the amount of leverage makes sense, in my opinion. I wouldn't borrow $80K in this example to get $2025 per year in cash flow.

@EpicRealEstate 5 жыл бұрын

No right or wrong way to go about it, just depends on how fast you want to grow.

@chrisbrooks4885 3 жыл бұрын

I agree with Anthony. If your able to pay off consistently, then I’d build up tons of cash flow 1st then once I’m financially free I’d switch to leverage for scaling purposes. I have #7 by the way.

@techguy3507 3 жыл бұрын

This makes me think. From age 35 to 50 I bought a condo about every 3 years. I was leveraged and it was a bit risky. But rents went up and that made it more secure. I paid off everything, my house, 6 rental condos, and also saved a big bunch in the 401k. When I bought my last 2 I could have paid cash but instead I put down 30%, I am enjoying the leverage, my non-rental investments are growing, my condos are growing in value, I collect my rents, and my rents go up. I purchased a condo 3 years ago, $50,000 down and now I have $30,000 collected in rent and it has gone up in value $36,000, in 3 years! Plus I get depreciation and expense write-offs on my taxes. I'm leveraged but I could pay it off so there is essentially zero risk. So I did the big leverage thing when I was younger, paid everything off, and did leverage again to maximize gains and get tax savings.

@ericcalabrese8716 2 жыл бұрын

Long term the second option pays off a lot more but I’m at a crossroads on two and I think I’m opting with trying to pay off both by 30 and pay cash moving forward

@FarhanKhan-ct3mq 5 жыл бұрын

I love the way you go into details and point out the specific details!! Amazing Thank You for the knowledge you share! Really helps.!

@techguy3507 3 жыл бұрын

I have 8 rental properties. The first big put down $7000 and took over the mortgage. People told me I was stupid. I then bought another and put down 30% each time. The rentals have tripled in value and my renters have paid them off. When I paid off the first I added that payment to the next. The second one paid off more quickly and then I added that to the 3rd, etc! More recently I purchase my last two and am getting good depreciation tax write offs. This and maxing out the 401k allowed me to retire early.

@thangvo2118 5 жыл бұрын

Just what I have been looking for, great detail, thank you!

@EpicRealEstate 5 жыл бұрын

You're welcome. What did you like best?

@phk8411 5 жыл бұрын

thanks again....great info.....you rock...

@toddspangler6669 2 жыл бұрын

Subscribed! I like how you talked about escaping the rat race...that is exactly my goal!!!

@SS-sy4uu 9 ай бұрын

People act like the cashflow from a paid off rental evaporates…you can use that cashflow and invest in stocks and guess what…your rental income will be buying you assets that will pay you. Rental income isn’t guaranteed…payments to the bank are guaranteed!

@EpicRealEstate 9 ай бұрын

I like it. Buy assets that buy more assets. Thanks fro watching.

@luisrivera5314 6 күн бұрын

Thank you so much for your opinion and all the information. I have being debating on what to choose and now I am more clear what route to take. Thank you!

@danny 5 жыл бұрын

What if you did the 5 house route and people just weren’t renting them for a few months for whatever reason.. is that a common issue?

@EpicRealEstate 5 жыл бұрын

It's not an uncommon issue, but I wouldn't say it's common. It would be very uncommon for all 5 houses to be vacant at the same time. If they were all vacant (or you had multiple vacancies), you'd likely be looking more at a maintenance or property management issue than anything of which can be remedied. How many rentals to you own now?

@DissonantShadow 3 жыл бұрын

@@snatchinitback4635 or... Government tyranny, I believe you mean.

@brandontoups7836 6 ай бұрын

@@EpicRealEstate come back to this comment and see what Danny's up to now 😄

@bcat8619 Жыл бұрын

Great video explaining both situations. Thanks for sharing!

@mg.1680 4 жыл бұрын

Very good explanation. We hv 4 multifamiles with 14 units total in SCal and I always debate if I shd pay off early or invest more. You’re absolutely right, it’s up to what you want to accomplish. Not because you can, you have to. You need to figure out what you want considering your financial status, market, age, risks, and tolerance for getting more tenants to deal with. Thanks for your video!!!

@charlesg7926 Жыл бұрын

One thing the video doesn’t talk about, but Dave Ramsey does, is that if you get overleveraged, it’s a very big increase of risk. If the economy crashes, and then people can’t afford to pay rent, and rental and housing prices crash, and if you have too many properties that aren’t paid off, then you can end up going bankrupt and actually losing all of your properties. This is why it’s good to have one paid off property for every 3 to 5 that you have financed. It’s a little slower but it’s much safer because it gives you a safety net.

@extremeflext Ай бұрын

very helpful. - thanks !!

@andredavis4411 3 жыл бұрын

This was really helpful xx

@shelleygreyrealtor 4 жыл бұрын

Love this! Thank you

@EpicRealEstate 4 жыл бұрын

You are welcome, and thank you for watching :-)

@sandiego3704 4 жыл бұрын

On the right side you also have $400k in loans - hopefully your tenants can pay!

@myndfulness 2 ай бұрын

Great video!

@rkalla 5 жыл бұрын

This was so clearly presented - thank you!!

@EpicRealEstate 5 жыл бұрын

You're welcome. What did you find most valuable?

@rkalla 5 жыл бұрын

@@EpicRealEstate I've watched so many of these 'payoff or leverage' videos and something about how you worked the basic example, straight down to raw CoC % gave me this ah-ha moment that I hadn't gotten from Ramsy (hard-line religious when it comes to payoff), Cordone, Puskiowski (I'm butchering his name - high energy guy on YT). It was really helpful to just walk the numbers and then at the end when you threw the other levers into the mix and pointed out the two (Depreciation/Leverage) that you give up it was another decent lens to look at this through.

@chrisbrooks4885 3 жыл бұрын

@@rkalla You still get depreciation on a paid off house

@pastimegamin Жыл бұрын

I own 3 so far, all with mortgages and I will tell you this now. Focus on paying them off. What most people don’t tell you in these examples is rising property taxes eating ur profits and it only takes 1 or 2 repairs such as leaks, roof issue, mechanical issues etc. that will wipe out all of your cash flow for the year. Sure you can raise rents but I’m telling you, most likely you will get at least 1 maintenance issue per month most will be small. If your looking to use leverage, don’t expect to make money or think you will be able to replace any source of your income with it. You’ll just need to look at it from a long term perspective when they are paid off or if they appreciate in value so much that it makes sense to cash out.

@AD-zx2zr 2 жыл бұрын

Why don't you talk about risk? How is risk involved?

@petersboro8502 2 жыл бұрын

Could you teach us more about the transition from high leverage to low risk? I have questions about reducing the number of houses to pay off debt without paying too much in capital gains. I am currently leveraged but when I retire I won't need as many houses and want to go debt free.

@fitwill73 5 ай бұрын

This was a great video. I just bought my first investment property this week, and I was thinking about trying to pay it off in the next five years. After watching this video, perhaps, I will try to obtain more properties and use leverage. This was the best explanation. I always wondered why some investors say, don’t pay your home off early now I understand. Thank you.

@mervekirmizi2992 5 ай бұрын

We got our investment property 6 years ago, it's been rented out for the last 2 years, we paid 50% off and now planning on buying another one.

@allenmiller1627 4 жыл бұрын

Plan on doing both but financial freedom is 1st then after I will leverage like crazy

@CreativeSoul333 3 жыл бұрын

I am confused as to how you get to the 2nd, 3rd, 4th, & 5th house... please elaborate. Thank you!

@mjwmontgomery 2 жыл бұрын

Pay it off, the rent will be enough to live on.

@EpicRealEstate 2 жыл бұрын

That is one way of doing it. Thanks for watching.

@thangvo2118 4 жыл бұрын

Great video. The tricky part is getting the bank to give you 5 separate loan/mortgage.

@EpicRealEstate 4 жыл бұрын

Not tricky at all. Where are you getting stuck?

@thangvo2118 4 жыл бұрын

I have two properties, one in SoCal (primary) and one in Scottsdale (rental but not reporting as such), combined mortgage of about $900K so its hard to get additional mortgages because of the income/debt ratio (even though I am a high income earner now). There must be a away. I want leverage using a HELOC to get more properties but not sure how. Really enjoy all your videos and serious about real estate rentals for cash flow. Looking to sign up with your team next month.

@EpicRealEstate 4 жыл бұрын

@@thangvo2118 If you'd like, Mercedes can help you with the next steps of navigating the loan process at passiveincomeaudit.com

@tonypeters3320 4 жыл бұрын

Thang Vo you might need to try another market my friend.

@fengchen5293 2 жыл бұрын

He forgot closing costs for each property . About 10k each

@orritalinda 2 жыл бұрын

I till wondering while watching all this videos where suggest buying 4 hoses in stead. How the bank will lend you money for 4 houses. As a business owner you write off a lot in taxes so no showing much income, therefore banks don’t want to lend you money.

@taipeikartman 2 жыл бұрын

What about pay it off and use the leverage to buy other properties.

@heavy1metal 3 ай бұрын

But if you pay it off you become the bank... You now collect the interest that would have other been going to bank.

@InOrlando Жыл бұрын

I have done two times already. Things are crazy expensive in my market now, so I don’t know if I am going to be able to do it again.

@luisrivera5314 6 күн бұрын

I subscribed

@javierpereira7580 4 жыл бұрын

Great video. Tks for the great value info. Only 1 comment. Pls use a different withe board or keep mic away, since my tooth was screaming across the entire video :(

@EpicRealEstate 4 жыл бұрын

Haha... it's been brought to my attention before :-) I'm not in that studio anymore. Thanks for the comment, and thanks for watching.

@rolcab2589 3 жыл бұрын

Why don't these fools use real numbers? Let's say the purchase price is $300000.00 and thexrent is $1500.00 per month.

@robbunda5559 4 жыл бұрын

You didn’t take into account maintenance on the right side. This inflates the CROI.

@EpicRealEstate 4 жыл бұрын

Yes, I did. It's included in the 40% expenses. On average over the last decade with more than 300 properties going in and out of my portfolio 40% will cover taxes, insurance, vacancy, maintenance and property management. If your experience is different, use your numbers in the math. Whatever adjustment you make, however, you have to make to both sides. The end result will still be relative to each other.

@chrisbrooks4885 3 жыл бұрын

@@EpicRealEstate Yes he included it. , However the vacancy cost would be significantly worse on the right because of covering 5 loans during the vacancy periods vs 0 on the left, so whatever cost amount you used to represent both would not be equal. Example ; If you used $200 month on the left for vacancy cost, then you can not use $200 on the right for vacancy cost because you have debt payments. You’d have to use $200 plus $171 on the right.

@kjia006 6 жыл бұрын

How did you get the $429 interest cost?

@EpicRealEstate 5 жыл бұрын

It's the mortgage payment for the bank loan. In the interest of efficiency, I did the calculation in advance.

@kasokachibanga8837 Жыл бұрын

What’s a good cash on cash return?

@EpicRealEstate Жыл бұрын

Any return that exceeds your existing cash on cash returns. Stay focused on constantly improving your returns. 1% is better than 0%. 2% is better than 1%.

@Frankiep72 5 жыл бұрын

Great video! With $100K in cash, would you recommend buying 2 homes all cash for $50K each using the brrrr strategy, or to buy 5 homes with $20K down for each?

@EpicRealEstate 4 жыл бұрын

Thank you. To answer your question, it depends on what you want to accomplish. The 2 houses brrr strategy with $50K and the 5 houses with $20K will essentially end up with the same result.