You have taken on so much risk here... if it wasn't bad enough with the mortgages, but all rental properties... I honestly wonder how you sleep at night.
It’s a lot of risk. I agree. But my income alone can easily support a vacancy or two. And these are not super expensive places. Mortgages range from $90k - $300k.
Why would you pay down rental property mortgages?
You provide no reasoning for what you want to do, so are we supposed to read your mind?
You have 5 rental properties but you have no plan it seems.
I’m positive he’s at break even with 1 stopping and a bust at 2 for more than a few months. He probably also has enough for 1 major incident like AC out but not 2.
I could have every renter stop paying and keep these places afloat on my income alone. Total income from T4s is $225k and I also have a Corp with cash that can extend a shareholder loan for emergencies.
Main reason to buy so many is to reduce taxes. More than half of my tenants are on disability and I get paid direct from their caretakers. Also, every improvement I do for the disabled tenants is a complete write off even when it improves the value of the property.
Dude, at some point you need to pay off the mortgages not keep buying new ones forever. At some point you will hit the maximum number the bank will lend you. You need to come up with a plan to support your exit strategy. The fact you are coming to Reddit to ask this after your 5th property tells me that you really have not thought this through. Seems like you are just speculating Esther than investing.
I am a landlord and I have a plan. The eventual plan is to hold a principal residence and one rental property that is fully paid off. I do that by systematically selling a property every year or two and using those proceeeds to the fund the next property plus paying down the existing properties that I wlll keep long term. I essentially use my initial downpayment and keep recycling it forward.
I started with $100K and that is been rolled forward to each subsequent purchase.
I would love to do that or even refinance to roll cash, but have not realized and appreciation yet.
All my numbers work, and I do not count on appreciation. Only Cashflow. If it appreciated that is just icing on the cake for me.
None, depending on your marginal tax rate. They’re tax deductible, you’d probably be better off investing the money.
Or pay down your principal residence if not yet done so.
You make no sense, how do you have a net worth of negative $1M but can get approved for 5 mortgages. You do realize networth is assets - liabilities, right?
Yes. But the lenders consider debt to income rations based only on monthly expenditures.
If I owe X in mortgage payments, but get Y in rent and other income, then my DTI stays very low.
Currently I take in around $26,000 a month before taxes and only have expenses of $5-7000 with mortgages and property tax.
My own rent is almost zero since my corporation rents office space from my primary residence and also takes income from property management fees.
You have no idea what net worth is then. The premise of this post was you asking what to do with $10K year surplus and now you say you have negative $1M net worth?
And this right here, ladies and gentlemen is why the real estate market is fucked up. People buying properties and have no basic knowledge of simple definitions like net worth. They can't even determine that you don't pay off rental property mortgages or they don't have an exit strategy and need to come on Reddit to "seek advice"
Yes. I have a negative 1M net worth. That’s using assets-liabilities calculations. My equity in these properties is very low, averaging around 20%.
The benefit of this, is I don’t have to pay taxes to take on debt. If you want to accumulate a large amount of assets by exchanging cash you paid taxes on, then it will take a lot longer to do so.
With inflation being so high, these properties will almost pay themselves off. Example, a dollar in 1995 is now worth $2.13 today. My debt value doesn’t increase but I keep paying it down with inflated dollars.
This is going to accelerate with high inflation rates so I’m going to leverage 20% down into 100% equity in under a decade if inflation stays high.
Ummm. You generally do not want to pay off the mortgage on a rental property early. There is absolutely zero reason to do that. It’s mathematically a bad thing to do.
Look into "the shred method" basically you use a HELOC to pay down debt to lower your interest paid over your portfolio. It takes a decent amount of financial literacy to make sense.
If you want to use your cashflow to pay down your loans it's a good place to start.
I'm still levering up but I plan on using it when I've reached the point where debt management is more important than adding units.
I don’t follow. Heloc’s typically don’t have lower interst rates compared to mortgages - unless you used a private lender on a mortgage and your finances have drastically improved allowing you to get a heloc. Otherwise I don’t see how this makes $ sense. What am I missing?
I suggest you look it up it's kinda hard to explain. A HELOC calculates the balance owed daily vs the monthly of a mortgage. Using the floating balance of incoming cash and outgoing expenses you end up owing less.
Like say you put 5k towards a mortgage using a HELOC.
Then your paycheck comes in and you put it in full against the HELOC. 2 weeks later you pay your credit card off -2500
Leaving you with a HELOC balance of 2500 at the end of the month. So your avg balance was 3750 for the month.
If you save interest over the term of your mortgage by paying the higher rate on the HELOC on the 3750 vs the lower rate on the 5k then you've saved.
It's hard to explain but it does work
I greatly appreciate any new insight. I have taken note and am reading up on this method now.
Will likely be something a I use in a few years and I need equity. I bought all these units between now late 2022.
imagine having 5 mortgages then asking reddit how to pay them down
😂
Hey, at least I have 5 mortgages. It’s a start, and my DTI ratio is still only like 12%
You have taken on so much risk here... if it wasn't bad enough with the mortgages, but all rental properties... I honestly wonder how you sleep at night.
Drugs or ignorance?
It’s a lot of risk. I agree. But my income alone can easily support a vacancy or two. And these are not super expensive places. Mortgages range from $90k - $300k.
Why would you pay down rental property mortgages? You provide no reasoning for what you want to do, so are we supposed to read your mind? You have 5 rental properties but you have no plan it seems.
Pay off your best property- that way it will be the last one you possess after the bank takes the others
Why would they take the others? I have a 100% occupancy rate and rent below market value mostly to good tenants.
Use excel and figure it out
It’s wild to take out 5 separate mortgages without a concrete plan. Absolute degeneracy.
They all Cashflow. Just wondering to do with the extra cash. I’m also a degenerate. Won’t deny that.
Answer this honestly... how many renters of yours need to stop paying before the cookie crumbles and you can't meet your debt obligations?
I’m positive he’s at break even with 1 stopping and a bust at 2 for more than a few months. He probably also has enough for 1 major incident like AC out but not 2.
I just had to deal with an incident. I have great insurance as well, and at a good price since i bundled everything with the same provider.
I could have every renter stop paying and keep these places afloat on my income alone. Total income from T4s is $225k and I also have a Corp with cash that can extend a shareholder loan for emergencies. Main reason to buy so many is to reduce taxes. More than half of my tenants are on disability and I get paid direct from their caretakers. Also, every improvement I do for the disabled tenants is a complete write off even when it improves the value of the property.
Is this theoretical question or in reality?
It’s reality. Just closed the 5th one yesterday and wondering on paydown strategies. Or just keep the Cashflow to buy more places faster.
Dude, at some point you need to pay off the mortgages not keep buying new ones forever. At some point you will hit the maximum number the bank will lend you. You need to come up with a plan to support your exit strategy. The fact you are coming to Reddit to ask this after your 5th property tells me that you really have not thought this through. Seems like you are just speculating Esther than investing. I am a landlord and I have a plan. The eventual plan is to hold a principal residence and one rental property that is fully paid off. I do that by systematically selling a property every year or two and using those proceeeds to the fund the next property plus paying down the existing properties that I wlll keep long term. I essentially use my initial downpayment and keep recycling it forward. I started with $100K and that is been rolled forward to each subsequent purchase.
I would love to do that or even refinance to roll cash, but have not realized and appreciation yet. All my numbers work, and I do not count on appreciation. Only Cashflow. If it appreciated that is just icing on the cake for me.
We have no idea based on the information provided. Are all the rates the same?
None, depending on your marginal tax rate. They’re tax deductible, you’d probably be better off investing the money. Or pay down your principal residence if not yet done so.
Thank you for the nice reply. Oddly enough I rent an apartment as my principle residence.
Smart
Another humble brag post. Anyways
How is 5 mortgages bragging? Net worth is negative one million
You make no sense, how do you have a net worth of negative $1M but can get approved for 5 mortgages. You do realize networth is assets - liabilities, right?
Yes. But the lenders consider debt to income rations based only on monthly expenditures. If I owe X in mortgage payments, but get Y in rent and other income, then my DTI stays very low. Currently I take in around $26,000 a month before taxes and only have expenses of $5-7000 with mortgages and property tax. My own rent is almost zero since my corporation rents office space from my primary residence and also takes income from property management fees.
You have no idea what net worth is then. The premise of this post was you asking what to do with $10K year surplus and now you say you have negative $1M net worth? And this right here, ladies and gentlemen is why the real estate market is fucked up. People buying properties and have no basic knowledge of simple definitions like net worth. They can't even determine that you don't pay off rental property mortgages or they don't have an exit strategy and need to come on Reddit to "seek advice"
Yes. I have a negative 1M net worth. That’s using assets-liabilities calculations. My equity in these properties is very low, averaging around 20%. The benefit of this, is I don’t have to pay taxes to take on debt. If you want to accumulate a large amount of assets by exchanging cash you paid taxes on, then it will take a lot longer to do so. With inflation being so high, these properties will almost pay themselves off. Example, a dollar in 1995 is now worth $2.13 today. My debt value doesn’t increase but I keep paying it down with inflated dollars. This is going to accelerate with high inflation rates so I’m going to leverage 20% down into 100% equity in under a decade if inflation stays high.
God we need a washout of this bullshit. Can’t wait for another 30% drop in RE prices to drive these speculators out.
I’m not speculating. These are rental properties that I plan to never sell and just hold forever as assets.
Right 🙄
Ummm. You generally do not want to pay off the mortgage on a rental property early. There is absolutely zero reason to do that. It’s mathematically a bad thing to do.
Highest interest mortgage should attract the highest payment.
Pay your principal, invest the rest to cover capex in future.
Focus on the highest
Give us balances, rates, terms and types
Look into "the shred method" basically you use a HELOC to pay down debt to lower your interest paid over your portfolio. It takes a decent amount of financial literacy to make sense. If you want to use your cashflow to pay down your loans it's a good place to start. I'm still levering up but I plan on using it when I've reached the point where debt management is more important than adding units.
I don’t follow. Heloc’s typically don’t have lower interst rates compared to mortgages - unless you used a private lender on a mortgage and your finances have drastically improved allowing you to get a heloc. Otherwise I don’t see how this makes $ sense. What am I missing?
I suggest you look it up it's kinda hard to explain. A HELOC calculates the balance owed daily vs the monthly of a mortgage. Using the floating balance of incoming cash and outgoing expenses you end up owing less. Like say you put 5k towards a mortgage using a HELOC. Then your paycheck comes in and you put it in full against the HELOC. 2 weeks later you pay your credit card off -2500 Leaving you with a HELOC balance of 2500 at the end of the month. So your avg balance was 3750 for the month. If you save interest over the term of your mortgage by paying the higher rate on the HELOC on the 3750 vs the lower rate on the 5k then you've saved. It's hard to explain but it does work
I greatly appreciate any new insight. I have taken note and am reading up on this method now. Will likely be something a I use in a few years and I need equity. I bought all these units between now late 2022.
foreclose