I wrote 4 blogs so far about why you should NOT pay off your mortgage. This blog will talk about yet another reason why you don’t want to pay off your mortgage. It’s about diversifying the risk.
If you only have one rental property because you paid off and didn’t have any cash to buy more properties, what will be your vacancy when the house goes empty? 100%, correct? What if you have 10 rental properties and have 1 vacancy, it’s only 10%. Of course, in theory, you can have 10 vacancies and be in big financial trouble, but it’s very unlikely.
Also, if you only have 1 rental vs multiple rentals, you have all your eggs in one basket. What if something happens around your rental, and the value goes down? If you have rentals in 10 different places, it’s less likely that all places suffer catastrophic events.
Another thing to consider is larger equity (paid-off mortgage) could become a target for a lawsuit. Let’s face it, do you rather sue a person with 100% equity in a house or just 20%?
Finally having multiple properties will allow you to learn the ins and outs of managing properties faster than just renting one. This will reduce the risk of doing something wrong by being uneducated.
