Very, VERY sound advice Iron.
High, you’re not really focused in REI yet (from what you’ve said). You’re doing rentals, retails and wholesales. If you want to grow, it’s much better to focus on one thing and do it really well.
What is positive cashflow to you? This is important if you’re wanting to grow your net egg and you’re choosing rentals to do it.
Why pay them off if you can? What happens if you have only 10 rentals and 1 tenant doesn’t pay? No much, right? What happens when you’ve got 5 vacant? How about 5 vacant and 3 with major repair damage, and 2 non-paying “professional tenants?” Property owners with low/poor cashflows fail VERY quickly.
Part of growing a nest egg is protecting it. In REI, a good protection is to have as low a mortgage balance as possible on your properties. That said, I don’t think that it’s a good idea not to have access to that equity, preferably through a line of credit vs a loan. You said it yourself. You don’t need to spend the money. If that is the case, then why get a loan charging you 6-8% for money you don’t need immediate access? A line of credit makes more sense. You mention that you put the funds into an interest bearing account. Does it make more than the interest that you’d be paying back?
Here’s a thought. What is the ‘actual’ average paid interest rate for the first five years of a typical 8% mortgage? When do you actually pay the 8% interest as quoted? You math guys figure it out.
You mention that you want to get to where you “don’t have to work anymore” which would mean that you’re looking to get to a point where your ‘income’ from this initial $500K egg would be able to replace your JOB income. Yet you also say that you want the egg to grow in size. While both are possible to do at the same time, different strategies are needed to promote one over the other. Which is more important to you?
As stated, you can earn $25-40K a year on relatively safe, though lower yield, investments. Don’t know what you are trying to replace, but the national median income is $36K, so that’s not too shabby in it’s own right.
If you’re trying to get to a certain income point, then using the funds to get deep discounted rentals/investments with LOW mortgages will offer you the greatest returns. A property renting for $500/month with no mortgage cashflows better than one renting for $500/month with a $40K mortgage, correct? Creating a larger passive income WILL grow your nest egg, too. However, it will be a MUCH slower pace.
Another option for creating passive income is to look into buying notes. They can be bought at large discounts, too. Offer high returns, can be used as collateral for loans, or sold, and have the cashflow without the hassle of owning RE.
If you’re goal is to double the egg as fast as possible (without screwing up of course), then rentals aren’t the best option. Best option in RE there is to look into the wholesaling, retailing side of the business (focus leaning toward wholesaling for faster turnaround). Possibly look into what I like to call, “whoetailing” or wholesale to the public. Higher sales prices, little rehab, more profit. As an added bonus to this quick flip technique, you could also offer seller 2nd’s to help buyer’s qualify. This nets your cash in hand on the sell, plus a monthly income off of a property you don’t own anymore.
Raj