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I was reading this post on Blueprint for Financial Prosperity Armour Mg, and it brought up several thoughts which I'd like to share.
The article is about paying a mortgage bi-weekly rather than monthly, so you end up making one extra mortgage payment a year, ordering Armour online. The thought behind this is that the extra payment will drastically cut the life of the mortgage. Armour blogs, 
Consider a 30-year $200k fixed 7.00% mortgage starting in December of 2006. If you make one extra payments every December, then instead of the mortgage ending in December 2036, Armour without prescription, it will end in December of 2030 (if you make two extra payments a year, Online Armour without a prescription, it will end in March 2027).
Now, this is obviously a tremendous savings, in the case cited above the savings is almost $100k, Armour Mg. In the case of a primary residence, people like the notion of freeing up their cashflow early, buy cheap Armour, so that they can use it in other ways, Australia, uk, us, usa, like a personal safety-net or to invest elsewhere. I think in this case, the peace of mind that people get from fully owning their house is certainly valuable, where can i order Armour without prescription.
However, Effects of Armour, how does this strategy work for investment properties.
Let's say that I'm renting an apartment out for 2k a month, but my mortgage payment is only 1k, Armour wiki. Armour Mg, Is it better for me to use the extra money to pay down the mortgage, or is it better to take that money and invest it elsewhere. Surely if you highly doubt that you're not going to be able to make anything near 7%, Armour pics, it is better to just pay off all of your mortgages.
The point of the investment property is that it's an investment. What if instead of paying off the mortgage, buying Armour online over the counter, you save the excess rent until you have enough money to buy another place on which you will also have a positive cash flow (by design, Online buying Armour hcl, of course). You'll then be collecting positive cash flow from two properties, which you will then use to purchase another eventually, order Armour from mexican pharmacy. All the while, you're paying off the mortgages of your existing properties, Armour Mg. Instead of keeping all of your equity tied up in one place, Armour price, you're using it to grow your investment. In 30 years, your first property will still be completely paid off, Armour cost, but you'll also have other properties that are almost paid off as well.
If you use the extra money of an investment property to pay down the mortgage, in 30 years you will have one house that is paid off, 100k, plus the rent collected over the last 6 year period, but I don't think it compares.
In the second scenario where you buy other houses with the leftover rent, there are tax advantages plus you will benefit more from appreciation. Armour Mg, You're certainly leveraging yourself more in the second scenario, but I believe that it can be done in a responsible way according to your tolerance for risk. Maybe you'll want to wait 5 years before purchasing the second property because you want to have a large safety net before investing again. As I've said elsewhere on this blog, it is important to make sure that you have enough money to cover problems that will arise. If after you pay a mortgage and allot a percentage to maintenance and vacancies you still have rental profits left, I believe it would be wise to save that money and invest it elsewhere.
What do you guys think.
Thanks revdancatt for the pic.
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December 4th, 2006 at 12:47 pm
I like the idea for a personal residence. I believe it is smart to pay down the mortgage as quickly as possible on owner occupied property, but maintaining a home equity line that can be leveraged in case of an emergency or to utilize for short investment capital needs such as flipping/rehabbing. I agree with you that as for investment property, the owner would be better off reinvesting the positive cash flow into other cash flowing properties. The bottom line is, whether it is personal or investment, a person must analyze the likely return on investment and then consider the risk levels as well. Personally, I like the idea of acquiring 1 property per year (or whatever time frame is comfortable), then after 4,6 or 10 years sell the first few properties and use the capital gains to pay off the other properties so then the investor has several fully cash flowing properties.
December 4th, 2006 at 4:56 pm
I believe paying down the primary residence to the point of having a large equity (for an investment line of credit) kills two birds with one stone.
December 5th, 2006 at 12:45 am
[...] Landlord Shmandlord talks about the pros and cons of making extra mortgage payments on an investment property. I found myself scratching my head at the example of a property with a $1000 per month mortgage payment and $2000 per month rental income…and then remembered: not everybody lives in California! [...]
December 5th, 2006 at 6:50 pm
Personally I would always rather use the bank’s money rather than my own. By paying down the mortgage one also loses the tax benefits. If you cant find better investments out there for the extra money you have then keep searching because they are out there.
Scott
http://www.educate2motivate.com
December 6th, 2006 at 4:47 am
There is a lot to be said for the security of owning your own home. Then only the government can seize it if they choose to.
If you find properties where you are paying out $1000 and getting $2000 a month…. call me… I’ll buy them from you…. all day long…. every day… until I have sapped the last banker dry (as if a banker would care if the deal was good).
We just paid cash for two rental properties because they were such a good deal… and since we had the money why pay the bank interest… when we need the cash for another good deal we’ll just take the equity out of them.
Keep in mind Scott that not everyone itemizes their taxes and if you don’t itemize you don’t see the tax benefits of your mortgage interest. I just love it when people throw up tax savings when they decide to spend an extrat $50K they don’t have on a house.
July 14th, 2007 at 12:54 pm
I suppose ultimately there is always a risk involved no matter what you do but you certainly make a good argument for keeping your cash-flow healthy to make other investments. It really all comes down to an individual understanding the numbers properly.
Interest only mortgages are a very good example of this. They can be a great financial product for somebody that properly understands the advantages and disadvantages but they can be a complete disaster for people who don’t do their research properly. I run a mortgage site myself and you wouldn’t believe some of the questions I have been asked.
Ultimately, I think a lot of it comes down to having a proper understanding of the industry.
November 23rd, 2009 at 2:28 pm
Also not the timing in which you make your payments is important. If you making bi-weekly payments is more beneficial than monthly, as most mortgage brokers charge interest weekly.
“You’re certainly leveraging yourself more in the second scenario, but I believe that it can be done in a responsible way according to your tolerance for risk.”
What are some of the other hidden risks that should be taken into consideration?
July 25th, 2010 at 3:40 am
here is a lot to be said for the security of owning your own home. Then only the government can seize it if they choose to.
If you find properties where you are paying out $1000 and getting $2000 a month…. call me… I’ll buy them from you…. all day long…. every day… until I have sapped the last banker dry (as if a banker would care if the deal was good).
We just paid cash for two rental properties because they were such a good deal… and since we had the money why pay the bank interest… when we need the cash for another good deal we’ll just take the equity out of them.
Keep in mind Scott that not everyone itemizes their taxes and if you don’t itemize you don’t see the tax benefits of your mortgage interest. I just love it when people throw up tax savings when they decide to spend an extrat $50K they don’t have on a house.