Pay down mortgage faster or not
Hey BP Community,
I'll be closing on my 5th single family home investment property in a few weeks. I'm in Texas, in an area where property values have continued to climb steadily since I've been investing over the past 5 years.
The house I'm buying will be used as a long term rental. After paying mortgage, taxes, insurance, and accounting for vacancy, maintenance, etc. it will be a break-even situation. I know some people are against buying properties that won't have a positive cash flow, but I'm comfortable with it because it is a long-term investment for me. I have a W2 job that pays decently, and my other 4 properties do cash flow. The house is a 4 bed/2 bath in a B neighborhood, conveniently located, zoned to decent schools.
I'm buying this house with a 30 year mortgage, 25% down, at an interest rate of 7.375%. I'm getting a pretty good deal on the house, about 25k under what it will be worth after it's renovated. The renovations are cosmetic and are estimated to cost about 8k.
7.375% is a much higher interest rate than the other 4 properties I have, which are all between 3.25 - 4.25%, but I know that's just the situation with interest rates right now, and it may not get better any time soon.
I'm considering trying to pay down this mortgage faster since the interest rate is a lot higher than I'd like it to be, and if interest rates drop and I'm able to refinance in a couple years, it would be nice to have even less of the principal to refinance on. But then I'm also torn because I want to keep buying properties. I have roughly averaged 1 property per year for the past 5 years, and I'd like to keep the momentum going until I have at least 7-10 doors.
The way I look at it is that I have a few different options -
1. Don't pay any extra.
2. Pay $500 extra towards the principal each month to bring down the principal, and saving about $136,000 in interest over time. This would still allow me to continue to invest in more properties, but it would still take about 12 years to pay off the house if I never refinance.
3. Aggressively pay off the mortgage and save a lot of money on interest. Just for extra context, the house is 190k, but over 30 years at this interest rate it's about 208k of interest. That's kind of hard to stomach, and that in itself could be the cost of another SFH in my area.
I also just despise paying high interest in general, so admittedly part of my reason for considering paying down the new mortgage is for peace of mind. I also realize I've been incredibly spoiled in the past to have gotten interest rates as low as I have.
Obviously I signed up for this mortgage at this interest rate, so I have to accept it for what it is at least for now, but I'm trying to look at all options and make the best financial decision.
I would love to hear people's opinions about this.
TLDR; pay down a 7.375% interest mortgage, or save the money to put towards buying properties?