if you have some extra cash savings should use that money to pay off the debt on your home or should you say that for rental properties that's the question a lot of us have and we're gonna tackle it in today's episode of ask coach and we're starting right now hi I'm Chad Carson I also go by coach this channel is all about helping you invest in real estate so you can achieve financial independence and do more of what matters in your life I'm going to take you now to a clip from a ask coach livestream and let me give you a little bit of context and background of the question that somebody submitted to me the person who asked the question was as a couple so a married couple they have two kids and they made about $90,000 per year between them and sort of the dilemma they were and they've been aggressively paying down the mortgage on their home to the tune of about $16,000 per year which is the extra amount of money they can save every year and so they're not uncomfortable with that decision to do that and that's not a not a bad thing necessarily but they're sort of the dilemma for them is they're also interested in getting into real estate investing and buying a rental property so the question is should you put that $16,000 towards paying down their debt and just to give you some context on the numbers I think they owe they have a house that's worth about $200,000 $230,000 and they have a debt of about $130,000 so you know over $100,000 or more and equity on this property and they want to know should I be paying down that mortgage aggressively or should I be saving that money for a rental property given their situation so I'm gonna take you to that clip now and let you know what my response was you know the plan a in terms of if you're just trying to optimize for growth so you're trying to get your portfolio as big as possible so that it supports you for as long as possible the plan a is to set aside that money and try to buy rental properties with it or some other kind of investment the reason being now I'm gonna give you an alternative like response to that as well just in case that's not your your answer but the reason being is that your pet you're typically paying off a mortgage three four or five percent on your home and you're whereas if you could go invest that if you could find good investments and that's an important if but if you can find good rental property investments and use some leverage on those properties it's very reasonable to think you could get an overall return of eight ten twelve even higher you know I've definitely got in the 20s and 30s with a lot of leverage and so you know this Ria's you could get a higher return on those that money and when you're in the growth phase one of your most important considerations is is recycling your money and investing it in things that can grow as fast as possible without risking the house and so here's the alternative light so I say that and I say like investing in rental properties would be that most optimized way but I'll also point out that you know it's very clear and this study after study shows that our investors psychology but this rental property investors stock investors whatever is probably the biggest factor and whether we're gonna be successful or not so like what what we think and how we feel emotionally about the strategy that we're using is is a significant factor because it's what's gonna either keep you in the game and keep you investing long run and sticking to the plan or it's not and so my response to this question about whether they should use the money to pay off their own debt on their house or whether they should save it and keep the mortgage and then buy some more rental properties with more leverage is a risk tolerance question I would ask you like how do you feel about having this mortgage out there for the next five to ten years while you're investing more money in real estate using leverage is that terrify you and keep you up at night because if you can't handle that if that's stressful to you then you know it's reasonable because he going at the pace he's paying off his property he might be paid off in three years three years or so he's aggressively paying this loan down so is it reasonable to think if that was if you were most comfortable with just getting this loan paid down and three years later you don't free and clear you'd always have a house over your head and now you've freed up a lot of cash flow that you can then go and vest some more yes you've lost three years of compounding potential you lost some deals but again investor psychology is the most important thing so like you need to have a foundation I feel uncomfortable with your strategy and I know people like in the book I mention the book earlier I profile 24 other people who have used real estate to retire early and it was across the board the different strategies that you use with debt like this my one friend rich Cary who I featured in the book is invested with zero debt he's always bought rental properties and he paid off his home and I've always had his properties free and clear like he doesn't use debt and tomorrow to borrow more money and took more properties he just pays a property off he saves all the cash flow he saves money from his job he buys an other property and then they saves more money piles it up buys another property and yes it's very slow and steady at first but it's also a low risk there's not a lot that can happen I remember a quote from a mentor miner Leon who always said you know what chad is hard to fall off the floor it's hard to fall off the floor meaning like when you're on the floor with like very low risk it's really hard to fall off like yes the worst case scenario is that you go slower and you take longer to get there but but when I've done the modeling and the math yes like the all-cash plan starts off slower but it actually like accelerates later on and if you're psychologically that helps you and that's the approach you want to take then I said go for it well I don't think there's a like cookie cutter that fits for everybody the optimize growth if you're okay with it is to keep more leverage right now reinvest that money that's what I've done typically but I'm now at a phase where risk is more important to me like reducing risk is more important than growing more and so I'm more about paying down debt strategically I still have some mortgages on properties I still have a long way to go in terms I'm 38 years old so I had a long growth horizon that I want to cover a lot of contingencies in the future so I'm not as aggressive and paying down debt as maybe some people are but I'm a lot more paid off like I've paid off properties and then kept mortgage land others to reduce my overall loan to value in my portfolio so I think once you reach a certain plateau along the way it's reasonable to start paying debt off so that's my response to the question of whether they should use their cash that personally to buy another property right now or to pay off their home and if you're still on the fence about that you can do something I've done before is like instead of pet using that money right now to pay off your home set the money aside and I count for the next year so you know or maybe two years you know you're gonna lose a little bit of like interest that you're paying on your mortgage but you could just set it aside and and then then you can do either one and then you might go out start searching for a rental property and if you find a really solid deal that you know is gonna be safe and you know is gonna get a good return then maybe you invest your cash in it if you can't find anything for the next year or two just the market so crazy you can't do it or just you're not in a good place to find a rental property you could always go take that money and still pay off the debt on your house so I like that idea of just setting that money aside in a savings account don't touch it and then let your actions and let your the market decide for you how successful that strategy will be thanks for watching this episode of ask coach TV what would you do in that situation if you had some extra cash savings would you use that to pay down the debt on your principal residence or would you use that cash to save it for your next rental property it is no right or wrong here right I'd love to hear from you in the comments below find out what you would do in your situation and why you would do that and if you're new to this channel I hope you'll subscribe follow along with me you can just click down below either click subscribe or like and you'll get all the next videos that I have and have a lot of fun stuff coming to you in the future and if you have want to watch some of our other videos that I've made in the past you can just look through the library there and I've got a lot of topics on financial independence and investing in real estate so again I appreciate you being here this channel is all about investing in real estate so you can achieve financial independence and do more of what matters in your life I'm Chad Carson I go by coach and I'll see you next time
