JD, I agree with most of your points, but I have to disagree with you on the point of paying off mortgages. Consider this:
Return on investment: He doesn't say what the interest rates are on his mortgages, but around 6 percent seems likely for rental property. Which means when he pays down a mortgage, he's locking in a six percent rate of return. Maybe less if he's in a high enough tax bracket, since he's losing the interest deduction, so let's say five percent. That's better than bank interest, but not that great for what is in effect a 20+ year CD.
Risk: What if he pays down the mortgage on a house that's under water, then it ends up going into foreclosure? He loses every nickel that he paid against the principal. If you have a house with a 50,000 mortgage that's worth 10,000, does it really matter whether the bank forecloses against a $45K principal versus a $50K principal?
Liquidity: This is my main issue. You and I agree he should build up a significant cash reserve. Any money he pays against mortgage principal isn't going into his reserve. You can ride out pretty much any crisis if you have enough cash on hand. In fact, a financial crisis can turn into a major opportunity IF you have enough cash.
Now a disclaimer: This is a case where I don't necessarily follow my own advise. My wife and I try to pay down our mortgages, and we do own three houses free and clear. We have one house that's deeply under water, yet we've paid down the balance significantly. I can rationalize this by saying the interest rate on that house is the highest of our mortgages, but realistically we should have walked away from the place years ago. Instead we have an 850 credit score and a money pit we'll never unload.
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