Do You Pay off Your Mortgage or Invest?

Most people that purchase real estate will not pay off their mortgage! Whether you do a 15-year or 30-year mortgage, the average American only owns their home for about 13 years. The whole purpose of borrowing money is to leverage yourself so that you can buy an asset that you don’t have the cash for. Even with interest rates going much higher in 2022, they are still considerably lower than in the 1980s and even the  1990s

Here are my thoughts on common questions people ask when it comes to their mortgage & paying off debts.

Should prospective investors pay off their mortgage before they start investing into more real estate?

As long as you have the cash-flow to be able to afford purchasing more real estate, carrying debt is not going to hurt your financial situation. Especially if you’re investing into real estate such as Multi-Family Properties, AirBNB Rentals, and long-term rentals, carrying debt gives you many advantages.

The main advantage is when real estate isn’t for personal use, the debt that you have can be used to offset the income that your asset is giving you. The interest that you pay the bank, your property taxes, lawncare, making repairs, and anything that is used to maintain the asset will be deducted on your taxes.

That’s why with Grant Cardone’s popularity skyrocketing many investors are turning to real estate. You can literally have $1 Billion in cash-flow and if your deductions offset that income, you can pay $0 in taxes.

Is there any debt that’s not acceptable to have when starting out investing? If so, what?

There isn’t any kind of debt that should deter you from starting to invest other than anything that has an interest rate higher than 12%. Why 12%? Well, the average return of the S&P 500, is about 12% since inception so if you’re paying an interest rate that is higher than what you can make your money grow, you need to make that a priority before investing.

Otherwise, if you don’t get your debt under control, you’ll start to build a false sense of wealth. You may be seeing your assets grow, but at the same time, you’re going to be paying an equal if not higher amount of interest, which is canceling out your investment returns.

Whenever I have a loan, I usually take out more than what I need. That way, the extra gives me a cushion to start aggressively paying more than the minimum payment and that allows me to take a loan that has an interest rate of say 5% and bring it down to 1% or less.

Just because a loan is 5% doesn’t you’ll pay 5% interest. If you get ahead on your payments, you can manipulate your loan so that you’re paying much less interest over time.


What arguments can be made for not paying off the mortgage?

The secret to building wealth is “leverage.” All great investors and successful companies use it to help them grow as fast as possible. If you want to buy a piece of real estate for $300,000 and use all of your cash to pay off the mortgage, you’re essentially closing off any other opportunities that may come your way over your lifetime.

Now, if you do pay off your mortgage, you can always do a cash-out refinance to gain access to extra funds in case you need them. However, for most people, especially in America, their home is their largest asset. What needs to happen to build more wealth over time is to ensure you’re placing your cash into assets that will grow at a reasonable rate of return over time. Otherwise, inflation will slowly eat away at your purchasing power and you’ll turn into the person later in life who complains about the price of everything in the world.

Your Guide,

Joshua Krafchick, “Unconventional Money Guy”

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