A friend and I have been debating this topic back and forth.
For years, I`ve believed that it`s better to leverage to the hilt, and use cash flow to re-invest and leverage to the hilt some more.
We would scoff at people who burn their mortgages because their ROI is so much lower, dollar for dollar.
However, we`re beginning to re-address this old question with new eyes and I would love to get the opinions of other REIN members.
If you have extra cash flow, let`s say $500, is it better to:
A: invest that $500 into another property, recognizing of course you may have to let it accrue for a year or more before you have enough money to actually do something with it?
B: Invest that $500 into a high yielding investment like a 2nd mortgage or something, again with the same short term critical mass challenge.
C: Invest that $500 into paying down your mortgage that much faster.
D: Invest that $500 into paying down a `re-advanceable mortgage` that credits the principal reduction back to you in the form of a home equity line of credit, and then investing THAT money into something.
I am torn on this issue for a few reasons:
1. the time value of money is important here.
2. the interest rate you would pay on a heloc is greater than on a mortgage, so does it really make sense to paydown something of lower interest only to replace with something with higher interest.
3. I know taxes are an important factor, but am not sure of their respective impacts in each of these scenarios.
I welcome the thoughts and experiences of other REIN members on this issue.
Thanks,
Kevin.
For years, I`ve believed that it`s better to leverage to the hilt, and use cash flow to re-invest and leverage to the hilt some more.
We would scoff at people who burn their mortgages because their ROI is so much lower, dollar for dollar.
However, we`re beginning to re-address this old question with new eyes and I would love to get the opinions of other REIN members.
If you have extra cash flow, let`s say $500, is it better to:
A: invest that $500 into another property, recognizing of course you may have to let it accrue for a year or more before you have enough money to actually do something with it?
B: Invest that $500 into a high yielding investment like a 2nd mortgage or something, again with the same short term critical mass challenge.
C: Invest that $500 into paying down your mortgage that much faster.
D: Invest that $500 into paying down a `re-advanceable mortgage` that credits the principal reduction back to you in the form of a home equity line of credit, and then investing THAT money into something.
I am torn on this issue for a few reasons:
1. the time value of money is important here.
2. the interest rate you would pay on a heloc is greater than on a mortgage, so does it really make sense to paydown something of lower interest only to replace with something with higher interest.
3. I know taxes are an important factor, but am not sure of their respective impacts in each of these scenarios.
I welcome the thoughts and experiences of other REIN members on this issue.
Thanks,
Kevin.