SO. To make sure to snag some good deals last year and this, we used up some of our HELOC and some of our PAL (Pledged Asset Loan) money. It was quick and easy and we got the deals and I didn't have to dither from which account I drew the funds.

We have the money to pay them off, but then of course we would not have that cash we would use to do it anymore.

I know SID's thing on debt and I know Brad's, but what about when you HAVE the money to pay it off but don't want to pull the trigger?

Interest is about 4.91 on each. PAL is borrowed from ourselves, really, but the interest is not paid to us.

If you pay that off then you are essentially paying yourself 4.91% interest every month.

I know that a lot of people on here like debt and I am starting to understand why, a little bit, but I can't see paying anyone interest and part of my profits as a good idea. I could be paying myself that interest.

I agree, 6x6, we have done most of our growing without debt, but we bought 4 or 5 places in two years so cash got a leeeeetle tight :)

No telling what the govt is going to do.

For me, if I can invest the excess cash above my needed reserves for emergencies and a bit more for the unknown at a rate higher than the interest you're paying, then I'd invest it. If you've got a bunch sitting in a bank making 1/10 of 1 percent, I'd use it to pay down the debt.

A lot would depend on what I thought the govt was going to do. Speculation is all over the place.

From what I see and feel, I'm going to protect my money at this time. I'm selling most if not all places because prices are high, they are mostly old and repairs are super expensive, and because I'm thinking worse times are on the way. There will always be deals to be had. If/when things get better, I'll do what seems good to me.

Easy question.

Hee hee,...about as easy as giving birth I imagine.

Anyway anyhow.

If you want to jump forward use debt. Go from three houses to five for example.

If you are at five houses, consider a slower growth where you wait for cash to arrive.

You have the advantage when speaking with sellers and you can tell them that you limit your spending to what you actually have.

"When did the bank help you Mr. & Mrs. Seller? Exactly, this is why I don't want to use a bank. I can't pay you full price, I can pay you half".

....then you follow with

"..unless, you would be the bank, then I'll pay interest to you....That I would not mind".

We had a similar discussion last night at our local REI meeting.

I was in the minority when I said “Pay it off”!

Nothing feels better than looking at all your “paid for” properties.

I am at the age that I want a more simplified life without debt. (We are the same age.)

If you do not like being debt free, take out another loan.

If you cannot completely make the move to debt free, set up a line of credit or heloc and maintain a zero balance.

I just secured a heloc w a 5 year time-line.

So if you pay it back you can borrow it again, or are you at the end of the road. I think interest rates will go up, so I locked in financing and am using it for capital improvements. New roof 13k for starters.

It's a 10 year HELOC, maybe second year in? Just used it for the first time this year.

But I know that a bank can cut off HELOCs at any time - I remember someone here mentioning that during the crisis of 2008 or so, lots of people who counted on their HELOCs got cut off from them, and some went under as a result. So paying it off doesn't necessarily mean I can use it again if the economy goes south.

I'm all for managed debt when you are growing. Even if no longer purchasing, do you really want to deplete the majority of your ready cash?

Cash is not the same as having dirt and bricks and having paid off properties (or a lot of equity) is not the same as being able to write a check for whatever you need.

If you take $100,000 out of your savings to pay off a loan with a $500 month payment, you will need 200 months - that's all but 17 years - to resave that $100,000. When you are in business, that makes zero sense to me. On your personal home, absolutely, but investment loans and personal loans are apples to oranges for me.

If no longer purchasing, I still wouldn't do it. If I wanted to be debt free, I'd probably double up (or whatever you are comfortable with) and pay it down a lot faster but you still aren't depleting your pool of money at once.

I share the belief to borrow all day at today's fixed rates because most likely they will go higher.

As you said, you already "know" my position, but I will give a few thoughts that I haven't gone over before.

1) Govt is massively inflating the money supply. We tend to think this will create high/hyper-inflation, which for all practical purposes lessens or completely wipes out debt for far less than the actual purchasing power obtained when the loan proceeds were received. But, there is no guarantee we will get inflation. We could get deflation, which does the opposite: now your debt costs MORE purchasing power to pay it back than when you received the loan proceeds. It could go either way. My crystal ball is murky as always, but in general I think conditions favor high/hyperinflation.

2) In addition to wiping out debt, hyperinflation also wipes out the businesses and economic stability we rely on to keep our businesses running smoothly. Think of having 10 houses that need new roofs. Okay, maybe you can cover that, but can you cover 20, 30, 40 houses? Maybe you can handle 5 of 10 renters not paying, but can you handle 20 out of 30? Debt allows us to grow, yes, but growth also puts more responsibility on our shoulders, and that must be accounted for. I think that when we spend cash, we tend to weigh the ancillary considerations more carefully. It slows us down enough to where we think more clearly.

To be fair, I get why people don't want to hold onto cash right now, as the value decreases by the day it seems. My thoughts on that is we have to always maintain enough liquid reserves to function for several months, but beyond that, yes, I would deploy it as quickly as possible into real estate and other "hard" assets. If we get high inflation, credit will likely contract, so HELOCs, HELs, credit cards, and credit lines will be called and/or have their max limits reduced sharply as lenders too will fear losing out.

Hit "Submit" too soon.

So my cautionary advice for those who choose to use debt--since I can't talk you out of it--is this:

1) For new purchases, only get fixed rate, long-term, fully amortizing mortgages. Avoid balloons and ARMS.

2) Ditto for refis. Get out of ARMs and balloon ASAP.

3) Do not rely on credit cards and LOCs as your emergency fund, as those can be closed or limited at the stroke of a CEO's pen.

4) If you refuse to get rid of LOCs/credit cards, then spend the funds on getting your properties fixed up into tip top shape NOW while you have access to funds. Don't assume you'll be able to tap into them next year, or even next month.

Sid, basically these are "interest-only" loans if you remember those. The only payment due each month is the interest. But of course we pay well more than that, as on the HELOC especially there is that 10-year time line. But because the funds were used to buy rentals, the interest will be deductible against those properties.

FloridaNative, this is the first time we've ever had a HELOC. We opened one last year - gee it might be two years ago now - just to see if we could. We didn't have a use for it at the time. Then these deals kind of fell into our lap.

WMH, be sure to check the terms on your note. Many interest only LOCS/HELOCs have a renewal clause on them. Annual renewal periods are common. So if the economy goes to crap or the bank decides they are overexposed in a certain area, they can call the loan to be paid in full with 30 days notice. Renewal is purely at their option. Be sure you know all the details.

Side note: this is what took Dave Ramsey down decades ago: he had short-term construction notes for flipping homes that got called. All his payments were on time. But the bank got sold and the new boss-man said that they needed to reduce their exposure to those kinds of loans.

FYI.

...but growth also puts more responsibility on our shoulders, and that must be accounted for. I think that when we spend cash, we tend to weigh the ancillary considerations more carefully. It slows us down enough to where we think more clearly....

First of all, what a great problem to have. If your PAL is a line of credit secured by your stocks, then it will be there as long as your portfolio meets their safety requirements like max loan = 50% of your stock portfolio. However, the line of credit is a variable rate interest.

If this is correct, I'd pay off all the loan and line of credit but leave the line of credit open for future purchases and go back into debt later if a deal is found.

Bad times are coming, just like the Jimmy Carter days.... inflation, stagflation, etc. Best go into the storm debt free, but with the ability to tap into the line of credit if needed.

It depends where you are at in the real estate cycle and where you are at in your real estate career.

I am flush with cash now, so I could pay off just about all my debt. But why pay of debt when the feds are printing up so much and charging so little.

Just a different thought here. Pay some on your newest loans. At the beginning of the loans it is mostly interest. If you make a one time principle payment equal to the sum of the next 10 principal payments you are saving the interest.

Let's say your loan is 100K 30 year 5%.

First payment is $536 of which $120 is principal and $416 is interest.

Your last payment is only a couple of dollars of interest.

So on your newest loans, pay $5000. In this case you magically save roughly 38 months of interest which is roughly $15,000 and shaves 3 years off your loan with that 1 time payment. That's a lot of bang for your buck!

OF course it depends how far along you are on your loan. Run some spreadsheet calculations.

Didn't you say a while back that you were done buying and had enough?

Now is the time to load up on fixed rate mortgages. Rates are at historic lows. They cannot really go any lower. You can get an investor mortgage at 4.5%. Inflation is coming and higher rates are coming. Inflation will make that interest payment smaller and smaller in reality. Inflation will raise your rent, while your biggest expense (mortgage payment) will be fixed.

Bonanza. In your example, you are saving interest into the future on the extra principle paid. So you are saving 5%. Does not matter what stage in the loan, you are saving 5%.

if you want nothing risk nothing. We started with diddlie-- we didn't even have squat!!!!

Manage the debt responsibly and you can have a fortune. The problem with using cash before moving forward with new purchases-- time is not on your side. Handling debt at 40 is WAY better than at 60. The time value of money works overtime for young investors-- but you gotta manage it. Create as much debt as you can to buy ASSETS-- income producing assets.

CAN'T say it enough. If you have nothing what are you risking?

At one time we had 80 mortgages. Did it matter if we couldn't pay 10 or 50 of them?