Dave Says: Pay Off Mortgage First

Finance, Home & Family, People
on April 18, 2011

Dave Ramsey is a money-management expert, national radio personality and best-selling author.

Dear Dave,
I make $100,000 a year, which includes the income I receive from three paid-for rental houses at $18,000 each annually. These houses are worth about $200,000 each. I also have $280,000 left on my mortgage. I’ve decided to sell off 75 one-ounce gold coins I’ve had for a while, and the sale of these should bring in about $90,000. Should I put the money from the sale toward my mortgage, or use it to start rehabbing and selling houses again?

—Phillip in Tampa, Fla.

Dave Says: I love real estate, and I love buying rehabs and flipping homes. My mind just seems to move toward deals. But these days, before my mind races toward a deal, it moves in the direction of risk awareness. This is because I went broke several years ago. Back then, my situation was very different. It was much worse than having a broken risk meter, because I didn’t even have one installed! I can see both sides of this equation, but here’s my suggestion. Sell the gold coins, plus one of the rental houses, and completely pay off your mortgage. That will leave you with two rental properties, a house that’s paid for, and an income of $82,000. Then, you can save up piles of cash in a hurry to use for your next renovation and flip! Use this method on any other projects you want to take on in the future, too. You might want to wait a few months on the houses while the market continues to recover in your area. But sell the gold today! Doing real estate investments when you still have debt on your home is a really bad idea.