I don't think you should pay off the mortgage on the rental property considering that it is a deductible expense and that the tenant pays it.
Just my two cents.
Just my two cents.
This assumes that the market return will be equal/similar to the interest paid on the mortgage or HELOC. Even if the average investor underperformed the market, but was only paying 1.75% interest on the loan - they'd very likely be ahead investing the money rather than paying down debt.If you are anything like an average investor, it makes sense to go for the sure thing: pay down the mortgage and earn a guaranteed after-tax return.
Not really. It also depends on how badly investors trail market returns. If the shortfall is 5%, markets have to return 6.75% in future years for an investor to simply break even (before taxes) on investing compared to paying down the mortgage. Further, a 1.75% rate is unusually low. I wouldn't count on it lasting the entire term of a 5-year mortgage.This assumes that the market return will be equal/similar to the interest paid on the mortgage or HELOC. Even if the average investor underperformed the market, but was only paying 1.75% interest on the loan - they'd very likely be ahead investing the money rather than paying down debt.
About $90-100k into the biz at the moment, but I dont draw it all out -- some benefits to keeping money in the CCPC.How much is your annual income?
Your calculator is broken. You would rather pay expenses in order to avoid giving a fraction (your tax rate) of those expenses to the government? And I would not totally rely on tenants for financial planning...sometimes they don't pay....or there are none.I don't think you should pay off the mortgage on the rental property considering that it is a deductible expense and that the tenant pays it.
Just my two cents.
Paying off debt = opportunity. When you have no debt payments you can invest larger sums of money and do just fine.This assumes that the market return will be equal/similar to the interest paid on the mortgage or HELOC. Even if the average investor underperformed the market, but was only paying 1.75% interest on the loan - they'd very likely be ahead investing the money rather than paying down debt.
If you are comfortable with leveraged investing, then by all means start up a SM and further reduce the 'effective' interest rate through tax deductions. Calculate the amount of interest you'd potentially pay on a HELOC after tax deduction, then determine the return you'd need to beat.
The 'risk' of focusing on paying down debt, especially debt at low interest rates is the cost of opportunity.
I believe risk tolerance is the ultimate deciding factor. Due you need a guarantee, or are you comfortable with moderate risk?
If you take a substantial amount of time to pay off your debt, the opportunity cost could result in an inability to catch up despite higher savings rates. It all depends on the assumptions on rates of return, future-value, savings rates etc. It should be somewhat straight forward to model based on a range of expected returns and interest rates on the loan.Paying off debt = opportunity. When you have no debt payments you can invest larger sums of money and do just fine.
Which is why you should never take a "substantial amount of time". 1-3 years is average depending on income and size of the mess. You will not likely get rich on the number spreads you are "spreadsheeting" in your explanation. There are many things that look great on a spread sheet that do not pan out in the real world. For example, I have a loan at 5 percent and I "expect to receive" 8 percent on an investment. This gives me a 3 percent spread right? Wrong. It is 3 percent minus taxes and risk. The risk being that I do not receive "expected" rates of return of 8 percent (no that never happens right?), and on the other side of the coin, I lose my job and miss a payment on the loan and they jack the rates..just as an example. One thing that is horribly wrong with a lot (not all) of financial "experts" today, is that everyone wants to only look at the up side and only crunch the numbers..as evidenced by this forum. Almost no real life is included in these calculations. I am not putting risk on my home where my children sleep and keep their toys so that I can "maybe if everything works out just right" make an extra few thousand dollars in the end. Another factor is stress and strain on a marriage for example. Ask your spouse how much they enjoy being in debt? I have always had an issue with statements like "depends how much risk you are comfortable with". What does this mean? It is not about how bold and brave you are...it's about the fact that no matter how "sophisticated", people lose their butts doing this kind of stuff every day.If you take a substantial amount of time to pay off your debt, the opportunity cost could result in an inability to catch up despite higher savings rates. It all depends on the assumptions on rates of return, future-value, savings rates etc. It should be somewhat straight forward to model based on a range of expected returns and interest rates on the loan.
As I mention before, it depends on the OP's risk tolerance level. It could mean it takes many more years to reach your financial goals.
If the opportunity of paying off debt was so beneficial, most investment companies would operate with exceeding low or no debt, which doesn't usually happen.