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Every real estate investor will face the decision of whether to use their resources to pay down existing mortgages or to reinvest in new properties at some time throughout their career. Both sides have valid reasons, but which option is the best in the long run if your goal is to manage the risks? The answer is dependent on a number of things. Before deciding what to do with your additional cash, you need to think about your position.
Of course, one of the leading risk management tools is a strong mortgage. After all, while investing in real estate will always require you to take risks, that does not mean you cannot structure your mortgage to shift as much of the risk off of yourself or manage risks in a better way. So, if you are like me and are a bit risk averse, click the link below to book a free strategy call with our team at LendCity today.
Identifying the issue
Anyone who has a mortgage and wants to invest in real estate has two distinct goals that frequently clash. Paying off your mortgage and living debt-free should be your primary priority. Your second goal is to diversify your financial portfolio, which you can do by purchasing new properties to rent or resell for additional income.
When you pay off your mortgage, you may be assured that your home is entirely yours. If you lose your employment, or have a financial setback, you won’t have to worry about losing your home due to a missed mortgage payment. You can boost your profit potential and secure an early retirement or a more ambitious lifestyle by investing in new houses while keeping your mortgage.
Both of these reasons could be advantageous to real estate investors.
However, if you only have the resources to pursue one of these objectives, determining the optimal course of action can be difficult. Let’s see some of the factors to consider before making a decision:
Your home’s worth
If you’re thinking about refinancing your mortgage, you should think about the worth of your home. Suppose your home has risen in value and you have equity. In that case, you may be able to refinance and earn a considerable amount of money to put back into your investing portfolio.
You may be paying more interest than you realize over the course of a 30-year mortgage. Even shortening your mortgage term by a few years can make a significant impact on your monthly payment. This can be an even bigger cost difference depending on how high your mortgage interest rates are. If you’re stuck with an unfavorable mortgage rate, it’s worth it to pay it off to prevent unnecessary costs.
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Returns to be expected
There’s no way to tell for sure what kind of profits you’ll obtain from real estate investing. However, depending on market patterns and property valuations, you can create conservative estimations. Several resources and calculations are available to assist you in assessing your potential profits when investing in various real estate options. Use these tools to obtain a better picture of what you can realistically expect from a particular investment.
You may put this conflict into focus by weighing the benefit of an investment against the possible savings on your mortgage interest. You just have to do now is make a decision based on your research.
Determine your risk tolerance
At the day end, this is a tolerance issue. Keeping your mortgage and reinvesting your money has a lot of potential benefits, but it’s not a wise option if you don’t have the tolerance for it.
If you’re a careful investor, nearing retirement, or in a low tax band with a high mortgage rate, you should do everything possible to pay off your loan. In the long term, the security of owning your house and being debt-free will provide you with far more assurance. On the other hand, investing may be the correct alternative for you if you’re an ambitious investor, youthful, or have a low, fixed mortgage rate.
As well, you need to be aware that not every tool is going to help you the same way. If you are trying to tackle risk online mortgage calculators may quickly mislead you into making more risky investments than you intended to make in the first place.
Every investor is unique
Before you can make the best investment decision, you’ll need to calculate the facts and carefully analyze your situation. If you decide to invest in real estate, be cautious about where you put your money. Purchase rental properties or residences in need of minor renovations before reselling so you may profit from your investments as early as feasible. These investments will quickly pay off, increasing your cash and allowing you to achieve your objective of being mortgage-free.
Keep your objectives in mind while deciding what to do with your liquid cash. You might even conclude that neither of these solutions is suitable right now! In this situation, save money so you’ll be ready when the proper chance presents itself.
In conclusion, real estate investing is a game of risk and reward, so if you want to reap the reward of buying multiple property you need to learn how to be less risk-averse and more proactive. If you want to learn how to get started today, simply click the link below to book a free strategy call with our team at LendCity today.