buyout or purchase second property

[jawsdivercan]

I have a current breakeven rental property with equity 120k my question is , I have additional funds available now 60k is it better to buyout first property to make it a positive cash flow property or buy another property or two that will be breakeven ?

I am 44 years old and looking at building up a retirement portfolio of around 3-4 properties with an end game of having around 60-80k a year income from them when I retire . I also own my principle residence in Surrey B.C. with a value of 575k and a 300k mortgage .

 

[curiousLo]

If you are planning to add more properties in your portfolio, using your $60K to buy that next property makes more sense.

 

[Thomas Beyer]

Cash flow does not exist in assets with over 70% mortgages, after counting necessary upgrades on tenant turnover. If the goal is to build an asset base - and I think it is a very worthwhile goal - then cash or trapped equity has to be invested into more assets. Cash flow will come, in time, with higher rents and lower LTV mortgages.



Retire on the cash-flow. When you are younger it is needed only to hold assets building equity through mortgage pay down and value increase. Think of your real estate up to retirement only as a networth enhancer.

 

[invst4profit]

Paying down of a mortgage to create cash flow should be from your tenants rent not from your own savings. Spending your own money to create cash flow is not true cash flow it is only the illusion of cash flow created by shifting your present assets (cash). Basic business smoke and mirrors.



As far as your plan to purchase additional break even properties is concerned this is also a very poor business practice. If a property does not create cash flow, including providing a return on cash invested, you are not investing you are speculating. Speculation on appreciation is a different business practice than purchasing INCOME investment properties. Owning investment properties is not a walk in the park and you will tire of it quickly after a couple of bad tenants if it isn't putting real cash in your pocket.

 

[jawsdivercan]

Thanks for the insite everyone. I am currently looking for another rental property .

 

[trevismcconaghy]

Using a line of credit on your primary residence can also free up cash for investment purposes depending on the rate you want to grow. Keep in mind that the interest on the investment portion is a deductible expense. This could free up 130k at a 75% LTV for further investment. This echoes some of the other posts.

 

[trev]

Cashflow is excess income after expenses. Sure, ideally you have it with just your initial downpayment, but the cash flow is no less real just because you put in additional funds to decrease your mtg payment. It simply changes your ROI

 

[invst4profit]

In the real world cash moved from one investment to another does not increase ROI unless the original investment had a lower ROI.

In the case of paying down a mortgage the ROI is only equal to the interest rate on the mortgage. If your original investment was at a higher ROI then the interest rate on the mortgage being payed down then your new ROI is negative.

 

[Thomas Beyer]

Retire on the cash-flow. When you are younger it is needed only to hold assets building equity through mortgage pay down and value increase. Think of your real estate up to retirement only as a networth enhancer. Refinance to free up more cash for more assets, ie higher networth. The more tenants pay your mortgage down the better as a general rule of thumb, if properly set up.