Which rental property debt should you pay off first? [Ask Coach]
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Episode 230 - Coach Carson likes the strategy of paying off debt on rental properties. Learn why it's smart and how to choose which debts to pay off (i.e. debt snowball or debt avalanche).
BOOK - Retire Early With Real Estate: www.coachcarson.com/retiremen...
VIDEO - How to Pay Off Your Rental Property Mortgage Early - • How to Pay Off Your Re...
Show notes (with transcript and links):
www.coachcarson.com/rentaldeb...
TIMESTAMPS:
0:00 - Intro
1:17 - Why You Should Pay Off Your Debt
2:32 - The increase of Cash Flow
3:04 - Debt Snowball vs. Debt Avalanche
3:55 - Motivation
5:29 - Risky Loans
06:17 - Pay off the Riskiest Loans First
6:50 - Cash flow by Principle Ratio
08:11 - Nuances
9:10 - Being Strategic
12:47 - Additional Resources
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@police994 3 ай бұрын
Put me in coach!! Love your video!!! I have 9 rentals. Paid off 3. Great safety net and reduced risk. 😊
@christopherbusch1618 11 ай бұрын
I’m a realtor and investor on the coast of North Carolina. It seems that most people are either on the side of leveraging as much as they can, or paying cash for everything. Nice to see some middle ground, we’re utilizing the same approach in our investments!
@amafid 2 жыл бұрын
I believe recasting a loan can be a better option at times than refinancing. They have a lower fee than refinancing and sometimes there is no fee at all. For example rocket loan charges a $250 fee to recast a mortgage if you can put $10,000 down. Wells Fargo does not charge a fee if you can put $20,000 down on the loan. This is especially helpful in a rising rate environment. You do not get to extend the loan out another 30 years it just re-amortize is over the existing time. You get to keep your current rate which is probably lower than the rate at which you could refi at today’s rates. It lowers your risk by paying down the loan and also increases cash flow which accelerates your cash flow snowball.
@CoachChadCarson 2 жыл бұрын
interesting idea on the recasting. Thanks for sharing a good tool.
@nellosnook4454 2 жыл бұрын
Always excellent advice! I’m 64, but I’m still a rental real estate investor. I’m still in “Cash Velocity” mode of successively acquiring, rehabbing, renting & refinancing SFH rentals. As such, I’m not yet interested in using my cash flow to payoff my properties. But when I “retire” from actively investing, I will definitely employ your suggestions! Thanks, Coach! 👍
@AberrantArt 2 жыл бұрын
Your channel is becoming one of my favorites. Every time it's great info and well explained. Keep dropping those knowledge bombs!!! 💣
@CoachChadCarson 2 жыл бұрын
Thank you for the feedback! that means a lot.
@JayPatel101 Жыл бұрын
I learn so much on this channel. You bring great information in a genuine way to everyone of all ages! Thank you!
@CoachChadCarson Жыл бұрын
I'm so glad! Thanks for your feedback, Jay!
@JohnSmith-ij4xe 2 ай бұрын
Also what it cost to refinance vs paying it off. Commercial property is often times very expensive to refinance so if it’s a small loan it’s better just to pay it off.
@Josh-ii1eq 10 ай бұрын
Paid off my 1st property at 33, renting it out and closing on another one in October yo repeat the same process
@CoachChadCarson 10 ай бұрын
Love it! Congrats!
@andrewmaccaskey4388 2 жыл бұрын
Thanks bro 😎
@gottagowithjoe1 Жыл бұрын
would you work on paying off primary home other than a rental first?
@khaluha9235 2 жыл бұрын
I have two properties, there’s one I can pay off at the end of this year. The other property will take 5 years to pay off. I can increase cash flow by renting by the room with both properties and live comfortably off that income, especially if I live outside the US.
@CoachChadCarson 2 жыл бұрын
That's a good place to be in. There's nothing wrong with taking a break at a financial "plateau" like where you are so that you can enjoy life and live off your income. You can always decide to grow again and use leverage if you want to.
@TheRetirementality 2 жыл бұрын
I'm struggling with what to do with my cash. I wanted to pay off mortgages but with inflation so high I started putting it in ETFs. now I'm down 12% and wish I would have just paid off debt. grrr
@poonekar 2 ай бұрын
It’s a year later. Are you up big now? Did it turn out to be the better decision?
@Krossmann52 2 жыл бұрын
Pardon my ignorance... But why would you want to keep debt? I could think of potential tax write offs. But that's not enough to justify. Thanks in advance.
@Alex-gx5mb 2 жыл бұрын
Hey Coach Love your Chanel! We would like to rent our current house. It is paid off and we would like to buy another primary residence. Would the smart move be to refinance our current house, that we plan to rent, and pay cash for the new house we would buy and live in? and why? Thanks Alex
@CoachChadCarson 2 жыл бұрын
Thanks for watching Alex! It could probably work both ways - refinancing your current house or financing the new house. The benefit of refinancing current house is you could do it with less stress of a deadline and then you'd have cash- which gives you negotiating leverage with the new purchase. Keep in mind their are rules about getting a loan on your residence. You need to actually use it as your residence and stay there a certain amount of time. Good luck!
@TJCanada 10 ай бұрын
I like the idea of paying off the higher interest properties but what do you do if your properties are in Canada and the terms are 5 year fixed rates? Every 5 years we have to refinance and the interest changes depending on the current rate.
@CoachChadCarson 10 ай бұрын
It's a good question. Do you have to refinance or does the interest rate just adjust? If it adjusts there is risk that the payment goes up. But not as bad as having to pay the full amount in 5 years
@DannyGrecoHomes 2 жыл бұрын
I've always been practicing the snowball strategy, but recently have heard that it's not wise to have rental properties owned free and clear. I believe it's a concern stemming from a liability issue if ever sued. Have you heard anything about that?
@CoachChadCarson 2 жыл бұрын
Having wealth in general - whether a free and clear property or cash in the bank - is a "liability" when looked at that way. It just means you have something to lose if you were sued. I wouldn't let the liability tail wag the investing/economic dog. Definitely something to consider - like having good insurance and talk to attorneys about setting up LLCs well. But capital allocation decisions (i.e. paying off debt or not) should be judged on its own merit, in my opinion.
@kriskris5989 2 жыл бұрын
@@CoachChadCarson 2 years ago I connected with an investor who is taking the money he collects as rents and is pushing them into a specially designed Whole life policy..it will take him 5 years to breakeven (cashvalue = premiums he paid into the policy)..he is getting an interest rate between 3.5-5% each year for the life of the policy..10-15 years from when he started the policy,he will have the ability to payoff the mortgage if he wishes to but he won’t because the funds in the life insurance policy is inaccessible to creditors,lawsuits etc.. he is using the insurance policy as an asset protection tool..i’ve started implementing it too and took out policies to park cash from rentals..99-95% of the money in the policy is accessible 1 month after i open up the policy..so i have my cash safe,getting little bit of interest and accessible..if i die,the money in the policy will go to my family 100% tax free..have you considered or are you already doing something similar?
@MacLaw3084 Жыл бұрын
Put free and clear properties into a trust (may not protect them from law suits). Get Umbrella policy.
@archerc4828 2 жыл бұрын
Is there a benefit to financing if it is not needed?
@CoachChadCarson 2 жыл бұрын
If you are still growing, financing can conserve your cash so that you can buy more properties. This "leverage" let's you build a bigger portfolio than you could otherwise. That is the main benefit I see.
@burbsboi18 2 жыл бұрын
The benefits of leverage -- specifically low-risk leverage like a 30-year fixed-rate mortgage -- seem way too good to pass up, even at today's somewhat higher rates. Still, I would think about paying off a loan early if I've reached the point where the "cash on cash returns" of paying off the mortgage exceed what I could get investing those same dollars in an additional property. For example, if I can pay off a $30K mortgage balance and eliminate a $300 payment, that's 12% "cash on cash returns" for all the years left on the mortgage -- likely better than I could get with a new property. In that situation, I might lean toward paying it off -- but that won't happen until much later in the life of the loan.
@CoachChadCarson 2 жыл бұрын
I used that same "cash-on-cash return" of a loan payoff on a lot of private loans and highly amortizing loans we had. Freed up a lot of cash flow. And like you said, we put lower payment, long-term loans further down the priority list.
@dncprops427 2 жыл бұрын
I'm REALLY conflicted about this. I have 10 mortgages (29 doors) with a weighted average interest rate of 2.91% (min rate of 2.5% max of 3.375%). The idea of owning them free and clear is very enticing, but with rates now at 5.3% on average, I really struggle with the idea of giving up all this, almost, free OPM.
@CoachChadCarson 2 жыл бұрын
Could you start buying new properties for cash? Essentially you are "paying off" the new properties at 5 or 6% interest. And keep the others for now.
@dncprops427 2 жыл бұрын
@@CoachChadCarson @Coach Carson I have considered that. The next property, that I'm under contract for, is a new build fourplex in AZ for $864k. Got about 500k in cash, so not quite and don't really want to put all my cash into that as it is my first AZ property and would prefer not to have taxable income in AZ. 😇
@grease58 Жыл бұрын
I'm in a dilemma. I own 2 investment properties, and 1 I own free and clear. The other one I owe the EXACT same amount on that mortgage as I do on my own primary home ($350,000). Between the two income properties, my wife and I make about $9650/mo in income and owe $2500/mo on the one investment property. My question is: do we pay off the 2nd investment property (which would mean we'd be getting $9650 free and clear every month and using that to pay down my primary mortgage) or do I just focus on paying down my primary mortgage of $350k?
@CoachChadCarson Жыл бұрын
What is your interest rate on your investment loan? On your home loan? And what are the terms (how long? Fixed or not?)
@grease58 Жыл бұрын
@@CoachChadCarson Interest rate on investment loan- 3.75%. On primary mortgage - 3%. Both are 30 year fixed mortgages. Taxes on investment property = $9,000/year. Primary - $16,000/year.
@CoachChadCarson Жыл бұрын
It's a tough call. But if you're ready to start paying off debt, I'd lean toward my home. Most of all it's a peace of mind thing. My wife and I paid our 3% loan and never regretted it. Interest on your rental is also deductible, whereas the home interest could be depending on your tax situation.
@siulanainad 5 ай бұрын
Never never never never and if in doubt…NEVER!!! During covid I know people who had 3 properties representing 10 doors. Not one of their tenants paid their rent due to the law defending them. Guess what saved them! The law allowing landlords to NOT pay their mortgage either. This went on for 30 months and saved their business. If not they would have gone belly up. That’s the real risk. Before covid everything you talk about made sense. Not anymore
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