Downside To Paying Off A Mortgage.

Josh's question: Is there a downside to paying off a mortgage.

That's all very individualistic. Typically, it's not bad to be leveraged, especially in this current environment to where inflation is coming. Any debt you have, it's just simply going to devalue, so now it would be an excellent time to put on a lot of debt. You need to have a place to put that money.

If you have some way to spend that money in a way that you can actually make more money, then that would be great. Otherwise, that's considered what we call dead money. So if you actually merely have that money sitting in a bank account, you don't have many place to put it where it's going to make you more money, then again, that's called dead money. It's not doing anything for you. All that is doing is devaluing.

If you actually do have a place to put that money, like the stock market or back into real estate, then great, you're actually making money off of it. And then you might want to keep your current debt because the current debt is merely devaluing. Again, it's just an incredible time to keep your current debt.

Now, there's a little side thing where I do actually like to have a mortgage on property, I mean, an attorney, anybody can actually go into public records. And public records is something where you could literally just flip through the pages one after the other and see like maybe 30, 40 properties, where you can even do a search to find properties that actually don't have a mortgage.

So if you are an attorney or someone who is fictitious, then you could actually very quickly, very easily find all the properties block after block after block after block that actually don't have a mortgage and you know that these are ideal candidates to sue, so you could actually slip on their sidewalk and you would be able to sue them. Or say you actually did slip on someone's sidewalk and you were to contact an attorney, and the attorney would quickly check the property, see if it has a mortgage, see if it doesn't have a mortgage. If it has a mortgage, the attorney might say, "Yeah, it's not worth it, people slip, people fall." But if the attorney sees that the property doesn't have a mortgage, they know the owner has money so they know that there's money available - and a considerable amount of money.

That's just one little side thing. One of the reasons why I like to actually keep mortgages on our properties, at least just a little bit, just because in my opinion, deters some of the liability. But as far as whether or not you need to pay off the mortgage or not, that is really up to you if you want to live mortgage free. I definitely don't like to over leverage our property unless it gets paid off. We really don't go back in and take out that much more leverage. I think I would initially renovate a property, do a cash out refi, take out the 75% of the cash out refi, like to put it into my next property to be able to facilitate that sale.

As the first property gets paid down, the most I think I would ever probably take out a second time on a property is probably 40%. Again, there's no point in over leveraging.

This is Joe White answering a real estate questions as best as I can. Good luck with your paying off your mortgage.


Joe White

Joe White is a Philadelphia Property Manager and Real Estate Broker. He is the owner of Grow Property Management and has been involved in the management, sales and purchases of Philadelphia area rental investment properties since 2008. He is an author and works as a real estate investment consultant and construction manager.

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