The question of whether or not you should pay off a rental property may seem like a relatively simple one. Worries may decrease while cash flow increases, on one hand. On the other hand, however, opportunities might be lost and cash on cash return may go down. Read on to find out more about whether you should pay off your rental property mortgage first.
Key Points
Here are some key points to keep in mind when thinking about paying off a rental property and when it should be done:
- As a real estate investor, you may wish to pay off a rental property if you’re nearing retirement and looking for less risk. For others, however, it may make better financial sense to purchase even more rental property using their available cash.
- Consider drawbacks before paying off a real estate property. This namely refers to lower potential returns, less diversification, having fewer liquid assets, etc.
- There are also potential benefits that can be experienced when a rental property is paid off. These mainly include eliminating debt, less worry, and increased cash flow.
- Before paying off a rental property, investors may wish to assure themselves that they can fully fund their retirement accounts. They might want to get rid of high-interest debt and make sure they have enough money in case of an emergency like a medical condition.
The Big Question
If you own a rental property that isn’t paid off, the biggest question you may have is, “Is paying off the rental property loan a good idea right now?” Here’s another way to phrase that question to help clarify your situation: “For the extra cash I have as an investor, what’s the best use?”
Naturally, for different people, “the best use” can mean different things. It can be a very attractive thought to no longer worry about mortgage payments every month. Take care of yourself before you pull out that checkbook, however.
Before You Pay That Loan
Before you pay off the loan on your rental property, here are three important things to consider:
- Are you capable of fully funding your retirement account?
- Are you currently indebted in some other way and does that debt come with a higher rate of interest (than your mortgage)?
- If a personal emergency popped up, would you have the kind of funds needed?
Here’s who to turn to for some training on real estate investment…
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