Cash Hash » Cash Hash » Cash Flow/ Cash Flows » Is making a principal payment on my rental house considered investing towards and asset?

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  #1 (permalink)
: I have an investment property that I bought a few years ago. It brings in a twice what the mortgage payment is each month. I was reading one of robert kiyosakis books and he spoke about investing in assets. I was wondering if I make principal payments on my mortgage instead of trying to save it in accounts would be considered investing in an asset? I was thinking I could refinance down the road once I get a good chunk paid down and invest in another rental house.

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  #2 (permalink)
: The idea of investing in assets is basically the idea of putting your money where it will work for you by yielding a profit. Saving, as the alternative to investing in assets, is simply accumulating money you've earned. Saving is a losing game due to inflation.

So, to your specific question, I say it depends.

It sounds like you are making a nice profit on this investment property. You've already invested in an asset by putting a downpayment on the property. You've also done something called "leverage" other peoples' money. You've taken the bank's money and invested it in something that yields you 2x what you have to pay for the use of their money(mortgage).

So, now you have a little more money. You know you don't want to save it because that is not the best way to accumulate wealth. You want to invest it in an asset. But, not just any asset, you want to invest it in the asset that yields you the best return. So the question is not is paying the principal investing in an asset. It is. The question is "is that the best asset to invest in?"

Yes, paying down your prinicipal will yield you increased profits by lowering your total payments and possibly getting rid of PMI if you still have that.

So, you need to evaluate whether paying principal is the best place to invest your assets. This depends on a lot of personal situations. You need to evaluate where else you can put your money and if they will prove more profitable.

If you have PMI fees on your current loan and can get rid of them by paying down the principal, it might be a smart move. If paying down the principal will give you sufficient Loan to Value ratio to refinance at an attractive rate, it might be a smart move. If you could buy another positive cash flow place with the money, that might be a smarter move.

You see how personal that decision is? In general terms, if I had a place that was giving me a very nice cash flow, I'd leave well enough alone with that and look to invest in another asset. But, this is personal and depends on your personal financial circumstance(what are your goals?), your temperament (do you really want to manage another place), your current mortagage, etc.
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