DW and I own 3 houses. Two houses worth around $500k each with $250k left in mortgages, four years into 10 year mortgages at 3.5%. We live in one and rent the other.
Our third house has a 30 yr mortgage at 5.375%. Worth around $180k and we still owe $160k. We have a renter and rent covers the mortgage and taxes at $1100/mo.
We have the cash currently to pay off that house. Should I, or should I invest the cash.
Currently our portfolio excluding the 160k in cash:
$40 k cash
$300k non-retirement funds
$275k retirement funds
$50 k in college funds
We both just turned 40, have one child
You really can't go wrong no matter what you do quite honestly, but here's what I would do if it were me.
1) The two homes with the 3.5% mortgages and 6 years left...let them just finish their schedule...they'll be done in 6 years...no real advantage to paying them off early.
2) I would pay that third house off today. The rate isn't GREAT, and while you could refinance for a lower rate, you'll likely pay at least some closing costs. I'd just pay it off and be done with it. I don't really care that rates are at historic lows and that you might not be able to get rates that low again. Low rates are only important if you plan to borrow money. Once you have these homes all paid for, do you EVER plan to borrow money again?
3) I would take the money from the income of the now paid for house and invest that. If you plan to retire in 10 years, I would make sure that those other two houses are paid for by then and save/invest at least $100,000 of your $400,000 income. I would invest MOST of that $100,000 a year in the non-retirement funds since you plan to retire before age 59 1/2.
Assuming 7% return annually over the next 10 years if you put $80,000 a year into the non-retirement fund account, by age 50 you'll have $1,615,461.
Assuming 7% return annually over the next 10 years, if you put $20,000 into your retirement accounts, you'll have $797,295 in there.
Knowing that at age 50 you have NO DEBT and potentially income coming from two rentals, you could take 4% of the $1,615,461 for $64,618.44 in income (when you add the rental income it's even better of course). Then, leave the retirement account alone until you are 60. At age 60 if you don't even add anything to it between age 50 and age 60, it will be worth $1,568,401, so if you take 4% of that, that's another $62,736.04 a year.
Having no debt in retirement and even leading up to retirement helps to eliminate risk...you've got risk in your investments (which is fine)...now you can balance that out by owning all three of those homes within 6 years...the first of which could be the one with $160,000 left. If slightly more than $64,000 a year (plus whatever the rental income brings in) doesn't sit well for you at age 50 you could always sell 2 or even 3 of your homes for well over $1,000,000 and go buy a small house for cash and use the remaining to add to your income-producing pile...or work until age 52 or 54 or or or.
You've put yourself into a great position. Almost nothing you do would be bad (regarding paying off or not). I just told you what I would do.