You’ve played Monopoly, right? Everyone gathers around the game, all eyes on Boardwalk and Park Place. Each player is thinking the same thing: Drop a house or two on those pretty blue squares, and bam! Sit back and watch the Benjamins roll in. You’re almost guaranteed to win.
A game of Monopoly is one thing, but actually being a landlord is another. Chris Brown’s True Stewardship listeners frequently ask if they should pay off their primary residence or rental property first. But they’re actually asking the wrong question. Here’s the real issue: If you still owe on your primary residence, should you even own a rental right now?
If your mortgage isn’t fully paid, the short answer is no. It’s not that we’re anti real estate. We want you to have those investments—but only when it’s to your advantage.
For now, let’s focus on figuring out how to know when you’re ready for a rental. If you can answer yes to these three questions, you’re headed in the right direction. Otherwise, do not pass Go. Do not collect $200—yet.
1. Is your consumer debt paid off?
Rental properties are great, but they don’t need to be a part of your portfolio if you’ve got consumer debt hanging around. You don't want to try running a marathon with ankle weights. It doesn't help. It only slows you down. Besides, you never know when Murphy will knock on your door. The last thing you want is to get stuck with water damage in your rental and owe an arm and a leg to MasterCard.
2. Are you investing 15% into retirement?
Rental property is an investment. But when it comes to investing, you want to diversify first. We see this throughout the Bible—from the parable of the talents in Matthew 25 to the call in Ecclesiastes to invest in multiple ventures. The goal is to avoid putting all of your eggs in one basket.
Think about it like this: If you had $150,000 to invest, would you want to put it all into a single parcel on one 30,000 square foot lot? Of course not. That would be crazy! Before you jump into investment properties, get diversified by investing 15% of your income in growth-stock mutual funds.
3. Have you paid off your primary residence?
Now that we’ve covered those crucial steps in your financial journey, we can circle back to the original question. It boils down to this: If you haven’t paid off your primary residence, it’s too soon to pounce on a rental. If something were to go wrong, you’d want to have a place to live, not a place to rent.
If you’re following the Baby Steps and have finished paying off your primary mortgage, congratulations! You’re in Baby Step 7. That is the last step and definitely the most fun. You get to build wealth, be outrageously generous, and leave a legacy to the next generation. It’s also when you can snatch up Boardwalk and Park Place without worrying about juggling two mortgages. If you’re not quite there yet, though, keep at it. All your hard work and discipline will pay off—and you’ll be there before you know it. Imagine how good that will feel.
If you have more questions about real estate and investing, our Endorsed Local Providers are here to help!