This is a money management question. I will try to make it as simple.

Hypothetical question: If you are over the age 50, how important is it to YOU, to have all of your short term and long term debt paid off by age 65?

My real question is this: If you have $300,000 in liquid assets (retirement nest egg) and $250,000 in short/long term RE debt,...how much of that (if any) nest egg are you going to sacrifice to pay off (or pay down) your debt load?

Again, how important is it to YOU to be debt free in your retirement years? Age 50 and beyond,..time is not your side anymore.

I'm not over 50....foiled again by age.

Depends on the debt. We are in our 60's and LL full-time. We have one remaining mortgage we *could* pay off. But it does not seem to make sense to do it - the place generates about 4x the monthly note, and the payment is now 50/50 principal vs. interest so in the not too distant future it will tip over to mostly principal. It's a 20 year fixed interest mortgage. The $8k a year in interest that we are paying is written off on taxes as a rental expense.

So we keep the money we could use to pay that off in our pocket, in case we want to buy OTHER properties cash-only.

Sid,

Anyone at any age can answer this question because it addresses your 'personal feelings' about carrying large amounts of debt into your golden years.

When you are young (under 50) and you have the luxury of TIME on your side,...can afford to make mistakes in trying to plan for your future. However, there will come a time when you realize you have lived more years than you are going to live (usually at age 50) and this can have a sobering effect on your perspective. Beyond age 50, you can't afford to make money management mistakes and end up being a broke retiree statistic on the evening news.

Roy, you know me....

I "retired" at 58.5.

Debt free was important enough to me that I paid off my last two remaining loans, even though the interest rates were 3.875 and 2.875. I can probably never borrow money that cheap again... but I no longer have any debt to service.

Sweetie has reminded me of this a few times. I've found that "magical deal" which would require borrowing again. And she's shut it down by simply reminding me one of our goals was debt free, and we have met that goal.

2 years in to retirement and i'm still happy with this decision.

Me, I'd keep the $300k, work my butt off to pay down the $250K. Keeping the vacancy rate low, turnovers quick would be key, for me. I tend to have way too long turnovers, but, now that I've had the houses a few years, that shouldn't be the case, as much of the neglect that was present when purchased has been fixed.

If the properties, (not just those represented by the $250K debt, but all in the portfolio are cash flowing, ) if it were me, I would just tighten spending by continuing to find efficiencies. I'd also work to increase length of good tenancies, more quickly terminate the tenancies that are dragging things down.

For me, keeping tenants who are occasionally, or even frequently, late, but communicate, and pay late fees and rents within the month, AND, are not causing any other issues, keep the place relatively well kept, those are my sweet spot. (I do allow tenants to use their discretion at having others stay with them for a while. As long as the guest behaves...I figure if my tenant occasionally helps people out, they'll have someone to help them when jammed up.)

Reading your question again, offering another angle. If the nest egg was $50K or $990k, me, I'd still keep the debt, just work to pay it down to maybe under $100K.

That nest egg protects against all the big, bad, unforeseen calamities, but owning real estate also provides another huge protection against big, bad, unforeseen calamities. Especially real estate on the low end. If things get really rough out there, and people want to downsize, what is more downsized than a 680 sq foot Roy handy man special? Well insulated and snug.

IMO, as long as the neighborhood doesn't slide into class D, I'll always have a wait list of interested applicants.

Given the scenario you have presented of $300K liquid and $250K RE debt and assuming this represents your situation, and remembering what you’ve said in the past about some of your liquid assets generating dividends....

I think this would be a great round table. Save me a seat...

For now, my answer won't be a surprise. I think one of the most important things we can all do as we get older is to reduce the risk to one's financial state. A very wise man once wrote that an investor is infinitely more concerned about getting his investment BACK vs. growing it to the maximum. I think that's true, although we could argue forever about the "risk" of not growing one's investment enough being just as bad. Growth is great and should be pursued, but loss of capital is more crucial because it takes twice as much growth to replace lost capital from a decline.

So with that in mind, I would use the vast bulk of the $300K to knock the debt down, thereby reducing risk, while keeping reserve a fat cushion (emergency fund). Maybe $200K paid off and keep $100K in the bank? That should reduce a ton of risk, and it is also consistent with the philosophy my financial mentor Dave Ramsey uses when he talks about paying off rentals after one's personal residence in Baby Step 6. I mention that because someone usually comes along here and incorrectly says that to be a true Dave follower you have to pay off all your rentals right away or sell them. He doesn't say that, never has said that, and it's certainly not in any of his teaching or materials that I have ever listened to or read. Most times, if someone is not in crisis mode (and a person with $300K in the bank is certainly NOT in crisis mode), he would encourage them to get rid of a size-able chunk while keeping a cushion intact, then work like crazy to pay off the debt in 3-5 years.

Caveat: if the $300K is in a tax-favored retirement account (IRA, 401-K), then you don't touch that except to avoid bankruptcy or foreclosure. Penalties are too stiff otherwise.

I'm well over 70 & have well over your RE debt, generating well over 12% net cash return & with well over 2X liquid assets. After factoring in tax benefits its not at all important for me to be debt free. As long as the net over all cash return is positive, no worries. In fact a couple of what if tax scenarios show net worth stagnation if there is no debt and a long net worth recovery time.

I question why 65 is your target age for this query. 65 is only a magic number as far as Medicare is concerned.

Historically, 65 was considered retirement age. But that's just not true anymore. My definition of retirement age is that age by which one is no longer in the full-time workforce.

So if you are a full-time LL, I would say retirement age is the age at which you decide that you don't want to be a full-time LL and you do something about it.

If that debt is in rental property, I would probably not pay it off with the reserves available. If the debt were in my own house, I would pay it off, or at least most of it.

My house was paid for when we built it. That was important to us 25 years ago. Not having the mortgage allowed us to put money into our retirements, savings, purchases. I certainly want to not have debt on my own house in retirement so I don't have to worry ever about making that payment.

Why not do both? Keep the cash in retirement and invest it in funds/stocks/bonds and sell your worst house or houses to pay off the debt. Then start saving for future purchases.

Its a Personal Decision.

All I know is its tough to Have and Keep

Age, Health, Money and Time on Your Side.

there is no way I'd use that cash to pay off debt. if something "goes wrong", you can still make the monthly payments from your principal ... in other words, you'd be paying down that debt slowly out of your liquid funds, rather than a great but gush down the drain.

I actually am working some math this morning along these lines ... but not those numbers. I have a mortgage with an escrow account. I haven't figured out what they did but they just raised my payment $123 a month for the escrow. Pi$$e$ me off that I've got to sit and figure this out. My loan balance is just under $5500. Mortgage is scheduled to be paid off April, 2019. To take $5500 liquid funds out of my pocket to save $228 in interest makes ZERO sense to me ... other than I really don't want to give them the extra $$$ each month nor do I want to figure out what they did ... and then get a refund check next May. That $322 per month in P&I is nothing compared to the cash flow of this building.

I want little or no debt at age 65.

I wish I could ask for a seat, but, alas, probably not going to make it. One of our beautiful beagles hasn't been feeling well, had laparotomy last week. Diagnosis: aggressive cancer. So, 1.) if she makes it that long, I won't be leaving her side 2.) I've spent so much time at home with her that I have to get cracking on my rehab.

I was really looking forward to being able to say I got that house done by this year's convention. And, wanted to meet Roy.

This is an excellent topic for a round table!

This post has nothing to do with my personal financial situation as some of you all have assumed. I just made those numbers ($300K/$250K) up to make an example of holding a combination of assets and debts.

Robert J,,

Why was being debt-free at 50 a mistake? Not being leveraged for disaster? Huh? I need some details here.

I would do/have done exactly what Sid said.

If I were not debt free it would be my goal to become debt free. But I wouldn't sacrifice my entire nest egg to accomplish this.

When I became debt free I also established lines of credit in case I ever needed them to the point where the need exceeded what I was willing to spend from the nest egg. Eventually the nest egg was large enough to not bother with the lines of credit anymore either.

Saved a lot of hassle dealing with the lenders. Having to prove to them I had insurance in the property (even though no money was drawn on the LOCs), an annual hassle, etc....

Roy,

Pay the loan off tomorrow!

Cash flow is great without debt. Financial Freedom!

After 6 months, if you do not being debt free, go borrow some money.

I got tired of the bank running my life and having control over what I do. I have been debt free for 14 years.

Being debt free, I have not grown my business as fast others, but, I cannot be foreclosed on!

Do not think that interest is a good tax deduction. If you pay $10,000 a year in interest, you get a $2500 tax deduction. That means you paid $10,000 to the bank to save $2500 in taxes?

I would prefer to pay $2500 in taxes and keep an additional $7500.

The biggest buildings in my town are the bank buildings - because of all the interest people pay.

With no financial help from me, one of my kids (32 years old) owns 3 paid for properties. They are looking for another property to buy with the cash they have saved from rentals. It will not take long before they can give up their corporate jobs and have freedom.

Good luck with the decision. There are a lot of interesting points in the above discussions.

Hello from the beach of the Dominican Republic!

I'm 67 this year and I still have 2 properties that have @ $24K and 23K outstanding. But that's OK w/me because *I'M* not paying that out. The tenants are paying off my mortgages and have been since the beginning. So far, as each mortg is paid off, I sell the property and put that lump of money into my retirement fund. So, I have cash, an Ameritrade acct with dividend paying stocks, a gov pension and now SS. I have plenty of income to serve any needs I may have. My tenants are paying off my Mortg-debt. That's the only debt I have and its not coming out of my hand. It is money that I really don't even see. The rents go into that acct and the mortgage payments get drawn from that acct automatically. The excess rent sits there and builds up.

Some further details on our debt free decision:

We did not touch our retirement 401k to become debt free. We still have at least as much in the market and bonds as in RE.

Paying off our final two very low interest mortgages increased our monthly income by over $1k. We could have left the funds in another place, but we feel really good about debt free living. That's worth something.

What is the interest rate? What is the debt to interest ratio? If the net income from the rentals after vacancy, repairs, insurance, taxes, and long term capital expenses still easily covers the debt payments and the interest rates are low, I would keep the debt. If the rate is high or the payment is difficult to cover when the property is vacant and needs some repairs for a turnover, I would probably pay it off.

The question is a little too simplistic for me. It depends on the numbers. Having paid-off rentals with no cash reserves is, to me, far riskier than having a mortgage to pay on.

Roy, I made the assumtion that the hypothetical was roughly your position, as the numbers mean absolutely nothing without knowing where in the country the retiree would be living, and roughly the value of the properties leveraged.

Without knowing exact numbers I also say depends.

But it would be more important to me to have enough liquid assets to more than take care of any emergency's. And even that one more killer deal you might run into.

Dont let what happen with your father influence your decision.

The important part is you know you have more cash than debt.

Something happens you know the cash is there to pay off any debt.

Thanks for all of the answers here. I posted this as a Primer for the upcoming Mr. LL convention /Roundtable.

I'm 32 my mortgages will start to be paid off when I'm around 50. I think that's a good age to be "retired."

CHRIS(CT): Your plan to have your mortgages paid off by 50 is good planning. But you make it sound like 50 is the beginning of the end.

Truth is my aggressiveness with business and investments didn't kick in until I hit 50 and I get more aggressive as each year passes.

There is a difference between being aggressive and gambling. The trick is managing risk and knowing how much you can afford to lose in the event it doesn't work out. It also means realizing that everything is cyclical especially in real estate and stocks. A good investment today, over time, can go either up or down so you need to know when to double down or get out.

This whole conversation isn't really helpful because there is too much information missing. As well as different personify types.

I got rid of debt but I also have a ton of reserves. Had I not had a level of savings I felt comfortable with I would have continued to use debt to my advantage.

I am in my 50's.

I agree that time isn't as friendly as it used to be, but 50 is still rather young. So should you consider increasing the debt load or not would be my concern.

What your question appears to be is what is better $250,000 in cash with $250,000 in debt or to have the two offset one another.

That depends largely on age and your risk tolerance level. Knowing where we are at in the real estate cycle should also factor into that too.

A quarter mill in debt is not that much at all. You have over a decade to work it off so I would work it off myself - but at the same keeping a closer eye on that real estate cycle.

In 2008, I was doing a deal once every 3 weeks and running the rentals. You want to be flush in cash when crap hits the fan. So if that means using leverage - as long as there is a short term and long term cash flow plan - you should be good.