Paying down the mortgage principle vs. strong cashflow rental. What would be the better option?
We feel like this is a great opportunity to invest in some rentals with strong cashflow. The cashflow received from the rental should cover the entire morgage payment on my primary house. We have carefully factored in the level of risks on rental we could take. We’re simplly cashing out some money on my primary house and using it to pay off the rentals.
You are not “cashing out” some money on your house unless you are selling your house.
If you borrow money to pay debt, you are not “paying off” debt, you are shifting the debt so that you owe the same amount to a different place.
As to whether not it is a good idea to borrow money against your house to pay the mortgages on your rentals, you would have to run all the figures. If you can get cheaper money with better terms, maybe it is worth doing it.
Be sure to figure the cost over the life of the loan. It is no savings to get a payment $100 less a month, but to add 18 more years of making payments.
Some people do not like to put their personal residence at risk. If they are going to lose something, they would rather lose the rental and keep the house.
Strong cashflow from rentals should come from getting good deals on acquisition price and rehab costs vs. market rent NOT from throwing lots of your money at the rental house. Personally, I wouldn’t mortgage up my primary residence for rentals, new car, etc. That’s how too many people got into trouble before.
I personally would not refinance my primary residence to pay off an investment rental. What happens if your tenants all move out and/or stop paying rent? You have no rental income to make your loan payment.
You could end up losing your primary residence.
If the rental properties are all generating a positive cash flow, a better strategy would be use the excess cash flow to pay down your rental property debt. Eventually, you will have all your rental properties free and clear without putting your primary residence at risk.
I like the idea of having my rental properties leveraged. The tenants are paying all the expenses and I get to put a little in my pocket each month. I would rather use my tenant’s money to pay off my investment property loans.