An Investor Wants To Sell Two Rentals To Pay Off The Other Two: 'Is It Irresponsible To Pay Off Two Relatively Low Interest Mortgages?'

Low-interest mortgages are a thing of the past. The days of 3% APR are over, and one real estate investor got a bunch of properties back when rates were low. However, this investor is wondering if it makes sense to sell two rentals to pay off the mortgages on the other two properties.

This strategy would allow the investor to be debt-free. However, it also means paying off a loan that has one of the lowest interest rates in the industry. One of the mortgages has a 4.50% APR, while the other has a 5.75% APR. The real estate investor is conflicted and turned to the Dave Ramsey subreddit for advice.

"Is it irresponsible to pay off two relatively low interest mortgages," the investor asked. 

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Other real estate investors shared their thoughts in the comments. Some spoke from personal experience, while others shared what they would do if they were in the original poster's position.

Paying Off Your Mortgages Will Increase Cash Flow

Most commenters suggested that the real estate investor sell two rentals and use the money to pay off the other two rentals. One real estate investor followed this exact strategy and ended up with a much higher cash flow.

The most expensive line item for most real estate investors is the monthly mortgage payments. Getting rid of this expense allows you to retain more of your cash flow each month. While some investors continue to leverage their portfolios and buy more properties, scaling back is a great way to manage fewer properties while generating higher yields. 

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De-Risk Your Portfolio

Selling two of the rental properties is also an excellent way to de-risk the investor's portfolio. We don't know about the original poster's net worth or portfolio diversification, but having four properties with debt is risky if you don't have many other assets. 

The real estate investor mentioned that they benefited from outsized gains in their location. However, those gains can vanish if the economy or the local market slows down. The investor may want to pocket some of their gains and end up with higher cash flow instead of taking a big risk by owning multiple high-debt properties. 

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Assess Your Long-Term Financial Goals

There are a few things we don't know about the investor that can result in a better analysis. For instance, it makes more sense to sell if the investor is in their mid-60s than it does for an investor who is in their early 30s. As you get closer to retirement, it may be better to reduce your exposure to real estate since this asset class requires a lot of management.

It may still make sense for a younger investor to sell two of their rentals because they can then diversify into the stock market if they don't have many assets in the financial markets. The real estate investor should also assess how much passive income they need to retire. Receiving full cash flow from two rental properties may be enough, and it requires less work than staying on top of four properties. 

The real estate investor should gauge where they want to be in the next five years. Setting out a further horizon and envisioning what retirement will look like can also result in a better decision. While you can earn more money by investing in the stock market instead of paying off the mortgages on both properties, the peace of mind and elevated cash flow may be worth it.

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