5 Paid-Off Rentals vs. 15 with Mortgages: The Math Will Change How You Invest

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Would you rather have 15 leverage properties or just five? But those five are fully paid off. This is always the debate among investors. Do you want scale or do you want simplicity? Which one ultimately builds more net worth and which one helps you replace your income the fastest?
If you want to find 15 good deals to scale, it is still very possible, but it's going to take some work. So you should at least know if it's worth it financially to put in that work. When do you keep scaling up and when do you start paying down? Today, I'm showing you the full math. What happens if you just buy five properties and sit on them, paying down your mortgage and increasing your equity over time? And what happens if you go in the other direction and continue investing your cash flow into additional units? The results may actually surprise you.
What's up, everyone? I'm Dave Meyer, Chief Investment Officer at Bigger Pockets. Today, we're tackling a question I get asked all the time. Should I keep scaling, or is it time to take your foot off the gas? And I've actually done the math to answer this question and to show you what happens to your cashflow and your net worth in different scenarios. I've got a whole bunch of charts to show you to explain who should keep accumulating more properties and who should start paying down their debt. Let's get right into it. So for our conversation today, we have to assume that you get to five properties, right? I had to create a scenario. And the one that we're doing is you start with five properties and decide, do you take the money from those five units, the cashflow that you're generating and the equity, and use it to scale or use it to pay down the debt on those five properties? Now, in this video, we're not going to get into how to get to those five units. We've done lots of other videos and episodes on how to do this. In today's episode, we're going to talk about what happens from there. Because once you get to roughly five units, that's where the magic really starts to happen. But the questions also come too, because you have these assets, you have money and capital under your control, what do you do with it at that point? Do you keep scaling or do you pay off debt? This is a super important question because I imagine, if you got five units, you're cash flowing hopefully a couple hundred bucks a month, which is great, but it can also feel kind of intimidating to do the math in your head and think, I need to get to 20 or 30 units to actually replace my income. And although that's absolutely possible, is it worth the effort? So I created a scenario to just show you how this works over time. The exact numbers will of course change a little bit for each person, but hopefully this will give you the gist of whether you want to scale or whether you want to pay down your debt. The example I'm using, I'm going to assume those five properties were bought for $400,000 each, close to the national average right now. And you did that over the course of about 10 years. Other assumptions is you're doing cash flow the right way. You're taking account all of your expenses. You're hiring a property manager. You're getting $3,400 in rent. And when you do all the math, that nets you $250 per month in cash flow for each of the five properties. So you're getting $1,250 all told from your portfolio that you've built over the last 10 years. These are examples. These are realistic numbers. These are kind of deals that you can get today. This is nothing special, but this is a solid portfolio of five properties. Let's talk about the scaling option first and how you could scale up from here. The way you do that is you take 100% of your cash flow from existing properties and use it to save for the next property. You're taking 1250 a month from your cash flow, putting that to the side.