Should we pay off rental properties first before primary residence, ultimately, where should the debt be? So overall, I don’t really believe in owning and primary residence, unless you have too much money. You don’t know what to do with it. I’m a believer of renting. I wrote a big article on this. It’s simple, passive cashflow.com/home.
I mean, do the math for yourself guys? Actually, I have a calculator for this. It’s at that URL symbol pass the cashflow.com/home, but it’s this big calculator I created where you’re able to put, you know, what is your rents? What is your mortgage payments? And then it kind of compares the equity build up.
And then what would happen if you would’ve just done something simple, like buy some rental properties, how much the equity would grow and it kind of compares the two scenarios. And whenever you’re trying to figure what should I do? I would recommend just putting it on a spreadsheet and figuring out what the math says first.
So whether you pay off the rental properties or the primary residence, it really doesn’t matter from like a numbers perspective because. Once you buy a property, it just goes in your portfolio anyways, the way I see it. But from a liability standpoint, I would rather encumber my rental properties with debt first because that’s the higher liability, but you know, here’s the problem.
This is why you don’t really want to. Pay off your debt, because especially if you own your primary residence and you want to outright every litigator out there knows exactly what, where you stand with your debt. There’s like things I subscribe to that I can kind of pinpoint how much equity everybody has in their house.
I mean, that information is out there for the taking. And when you pay off your primary residence, I mean, you’re a sitting duck for all this liability. Of course, there’s other things that you can do that we talk about our masterminds, like your vocable trusts and doing that some homestead stuff. But I think you’re going about this, the wrong way of like, well, what should I pay off?
What you want to be doing is. You want to be looking at your return on equity? There’s my handy-dandy chart that I show a lot of people, but you know, when you first had that rental, you’re making a lot of money, maybe 30% on your rentals, but as the appreciation happened and you paid down your mortgage and maybe you paid additional payment, don’t do that.
Because your return on equity is going down. And most people like after they own it, a decade or two, they’re making like single digits in terms of return on equity. I have a calculator on email@example.com slash R O E. I’ll put it into the Facebook group here too. So you guys can download that.
That’s the name of the game as investors return on equity case in point here, I mean, I’m living in this house. That my landlord owns outright. They are getting almost like one or 2% return on equity. I mean, heck for that much pain in the butt worrying, if I’m going to move out or not, they probably better be off in a saving spot and making I’ll be double what they are now.
It makes no sense to me, but Hey, I’ll rent from people like that and I’ll be on the winning side of it.