Why You Should Never Pay Off Your Real Estate

Key Points:

• A consumer's mindset is rooted in debt and scarcity, whereas an investor's mindset focuses on growth and abundance.
• Investors leverage debt for positive cash flow and tax benefits, making real estate a powerful business strategy.
• Paying off properties can limit an investor's ability to acquire more assets and grow wealth exponentially.
• The wealthy use strategies like the 1031 exchange and cash-out refinancing to avoid taxes while expanding their portfolios.
• The goal is to control multiple properties for sustainable growth, rather than focusing solely on ownership.

you're looking at a $242,000 house. What if I told you that I only had $83,000 left to pay it off, and I just received an $83,000 check in the mail for something else? You think that I would take that money and pay this house off? You're absolutely wrong. I would never pay this house off. In fact, I'd rather die than pay it off.

And if you're a real estate investor and if you're performing at the highest level possible, today I'm going to share with you the three reasons why you should never pay off your real estate.

I'm turning dreams into reality.

Yeah, it's one-on-one.

There is a world of a difference between consumers and investors, right? Consumers are always thinking about themselves. This is my primary residence; this is my vehicle. I need to control these debts, I need to pay these things off, I need to save money, and ultimately they're all trapped in an accumulation mindset.

It's like, "I'll just work extra hard at my job, I'll be great at budgeting, I'll put money in my 401k and IRA," and in that mindset, accumulation is always rooted in scarcity and fear—a lack. There's just not enough.

But you see, an investor can't afford to think that way because they don't care about owning stuff. What they want is to control stuff. As in, hey, if—um, as a consumer— you bought a house and fast forward 30 years later and it's paid off and worth, you know, $400,000, that's $400,000 of net worth that a lot of people don't have. If that worked, you know, an investor would say, "Let's reverse the clock. Let's go back 30 years in time and buy 10 of those because 10 would be worth not $400,000 but $4 million."

So investors have this abundance mindset that says through the power of leverage, through the power of rightfully using debt, tax benefits, and all the stuff I'm going to share with you today, there's an opportunity for you to grow not 10 times but even 100 times faster than a consumer ever could. It's a different mindset; it's a different set of rules.

And that's why I'm never going to be paying off my houses. So check it out, today's video is a little bit of a reboot. I just want to reboot the whole thing and go back to my chambers because not that long ago, I actually made a video telling consumers why they should never pay off their mortgage and you know what? A lot of people got super pissed.

Look at the comments on that video. That video is right here, and there were a lot of people who basically came out of the woodwork and said, "Don't follow this guy, don't listen to this," and basically, all of Dave Ramsey's followers came running saying, "Don't listen to this dude; you've got to pay off your debt, stupid, stupid!"

Let's start by getting clear on why this is such a polarizing conversation because you've been taught your entire life that debt is bad. And for consumers, debt is bad. It means you shouldn't buy that sports car, you shouldn't rack up the credit card, you shouldn't buy that boat, you shouldn't buy things that are not investments that are going to grow you money.

This equals bad. Bad debt costs you money.

But you see, today's video is to investors, and you might be a subscriber on my channel if you're a future investor or if you are an investor and maybe you're curious, "Wait, Chris, you don't have the goal of paying off your real estate?"

And the answer is, no, I do not want to pay off my real estate. If you're interested in making more money, why would you?

By the end of this video, you're going to get hyper clear. So understand first that there's a world of a difference between investors and residents. In other words, the people that are going out there and buying real estate that they want to put a tenant in, they want to collect rent, or they want to flip the property, bottom line is this is for people that deal in real estate ownership as business owners. We are doing real estate as a business, and the goal is to make money.

Now that's really important because a resident's goal of buying a primary residence is not to make money; it's to have a place where their family can grow, a place where they can work, or a place where they can live.

They have different considerations. "Oh, we want the slow street, we want to be off the busy road, and we want the cul-de-sac," and we're looking for, you know, trees that look this way, and I want the paint color. An investor doesn't think that way. They're like, "This one is... I want to make money."

And this person is, "I'm trying to create a little nest where I can live my life." This person is generally afraid of debt, wants to get out of debt, and that's that consumer mindset I was talking about earlier.

Investors are saying, "No, no, no, what's the philosophy for making money here?"

It comes to a lender. Primary residences tend to qualify for the lowest mortgage rates because mortgages on these properties are amongst the lowest risk loans for lenders.

Like, understand that banks are not in the business of real estate; they're in the business of lending money. And guess what? They love to lend money on collateralized property.

And they know that if you can qualify, they'll allow you to put 3% down or 5%, a real small amount of money, because they know that you're going to protect your home like your castle. They know that you don't want to lose your home; they know that you don't want to get kicked out on the street; they know you don't want to experience foreclosure when you're going to put down 3% or 5% down. They know that your risk of default is really, really low.

To an investor, however, a bank is an altogether different matter. An investment property is a property that you plan to use as a rental or to generate income. You're not going to live there. They typically require—speaking of the banks—a much larger down payment, like 20%.

It could be the most challenging properties to finance because banks are basically saying, "Yo, we're still willing to put up a majority of the money, but you gotta bring 20% to the table." In today's market, that can be $50,000.

A lot of people are funding that with their 401(k)s or IRAs or equity in another property. It's hard to, otherwise, when you're just working at a job, save up fifty thousand dollars. That's a lot of money.

And the bank says, "Wow, that's a different level of risk. You gotta give us more money, and then we're really gonna put your butt on the line because we know that you're not doing this for business; it's not your castle anymore."

So let's talk about the first reason why an investor does not want to pay off a mortgage: because it's a business.

They're basically saying, "Yo, I'm buying this property because I want this side benefit." The first one, positive cash flow, means, "Hey, I got my mortgage that I owe the bank $1,500 a month, but guess what? The tenant is giving me $1,900 a month!"

If the tenant gives me $1,900 and the bank and all expenses want $1,500, guess what that is? That's $400 over one, two, three, four—that is $400 left over every single month.

Now, for some people, that's a car payment. You know, for someone else, that's $400 to, you know, buy something else that they like or just increase or replace their income.

So the investor is now saying, "Ah, I did have to come up with the 20% down payment. I bought this property, but there is some money left over. And for that reason, my goal isn't to really pay off the debt; my goal is to focus on this right here: positive cash flow."

But wait a second, Chris, come on. If the house were paid off and the tenant is giving you $1,900, and instead of $400 a month, don't you actually get to keep $1,900 a month? Isn't $1,900 more than $400?

And I would say, "Yeah, but are you going to bring the other $200,000 to the table to pay off that property for that cash flow when you could use that to buy four more homes and now have a total of five homes appreciating?" I want you to do the math on that.

Last year, real estate went up between 15% and 20%. The year before it went up 12%. This next year, it's projected to go up 12%.

So with the game of leverage on each property, you're making tens of thousands of dollars. So imagine that your home went up $30,000 in value last year. If you had five of them, that's $150,000 in increase. If you had just one, that'd only be $30,000.

In other words, the debt is being leveraged to make more money—and who are we leveraging? The bank.

Okay, benefit number two: Why investors typically don't like to pay off their properties—I certainly don't—is because of the tax write-offs.

Check it out: If you need a tax write-off to reduce your taxable income, sources don't pay off your mortgage. Instead, invest in additional properties to create the ultimate tax shelter.

Let me explain what that means. When you buy a property, the bank allows you to depreciate the asset, and the IRS says that you can depreciate it essentially over 27.5 years.

So on a typical standard property, that depreciation is greater than the cash flow that you're getting. So I want to tie this back to the first idea: my $400 a month. If I actually get to write off—we'll call it $700 a month in total tax benefits for the year—every single month, then my cash flow is now tax-free.

But if I actually pay off the house, do I still maximize all of my tax benefits? I don't think about it this way.

I have here $250,000, and I want to buy a $250,000 home that I'm going to rent. The bank is only requiring me to put this as my down payment.

Now let's just say that I had $250,000. I could either say I'm going all in; I want to own it cash; I want to eliminate my tax benefits because I want to maximize my cash flow.

Well, we already talked about from the previous example that you're going to be minimizing your appreciation growth, which is significant for the next 7 to 10 years.

Why? Because the bank actually only needs me to put $50,000 down to control this property.

I can put $50,000 down to buy a second one, $50,000 down to buy a third, another $50,000 to buy a fourth, and another $50,000 to buy a fifth.

And when you start playing the game the way I do, you don't even need to have money. There are other ways of getting money. There are other partnerships where that money can help you get in on this real estate.

The same amount of money now allows me to control five homes versus owning one. And guess which one makes you a lot more money? Owning one home or controlling five? Controlling five homes will make you many times more money than owning one, which brings me to one of the most important principles that investors live by.

Are you interested in ownership, or are you interested in control? If you're a consumer, it feels good. It's a feeling to have something paid off: "This is my home; it's paid off, and now I have peace of mind. I can sleep well at night."

Tired I am, I got no sleep last night, and I feel good as a consumer. I'm trying to make financial decisions that produce a certain type of feeling for me. An investor—in real estate—is a business, and it's not about feelings. It's actually about data and it's about ones and zeros and it's about bank accounts.

And yes, there's a value arbitrage of I put someone in my home, I provide a home, it's a tremendous value; that's why I collect the rent. But what they're doing is they're not going for ownership and things paid off. They want the leverage of control.

By controlling five homes, I can make a lot more money than owning one. In other words, to the investor, ownership is overrated, and it will slow you down.

Whoa, whoa, whoa, Chris. There's a tremendous amount of risk that comes with using that amount of leverage. Isn't that stupid? Won't that eventually catch up? What if you make a mistake? Couldn't that lead to a house of cards that comes tumbling down?

Listen, it's a really good question. There are rules. There's a reason why banks say that you have to put 20% down, and there's a reason why I follow that rule.

When the economy becomes really risky and banks become flush with money, they might change the rules so that you have to put less down. But I won't.

And do you know why? That's because leverage is a tool for creating wealth, but it has to be kept in check.

Hang out for the end of the video, and let me show you how to actually control that formula of leverage for making the most amount of money without actually doing any of the work.

If you haven't guessed it, the third benefit and reason that investors won't pay things off is because as their investments keep producing cash flow and growth and returns, they have a chance to leverage that real estate to buy more properties.

In other words, if one is good, then ten is more good, and if ten is good, then one hundred is more good, which is why I've done thousands of these properties for me and my partners that I've built these portfolios with.

Once you pay off your mortgage, you do lose access to cash that can be used to purchase other rental properties.

While paying off a rental property will improve the cash flow of that particular investment, it may deny you the ability to purchase similar investments.

Ultimately, there is an old-school investment philosophy: "Cron, I bought this investment property, and I put the 20% down. I am looking forward to the day when at the end of my 30-year mortgage I make my final payment, and the house is paid off, and now all of the cash flow is mine."

And I'm sitting there thinking, "Congratulations! You took 30 years to pay off a house!" In the meantime, I bought 300 because I used leverage.

Question for you is this: Do you have 30 years in your time frame, in your game plan? What if you do something wrong? Do you have 30 years to waste?

Do you have time to get off target, or do you want to do what most wealthy people do, which is select a strategy where wealth is created inside of five years, not 30?

The choice is yours.

Now, let's take everything I've been sharing with you and let's put it into practice. Do you see this vehicle right here? This is a custom-built $250,000 vehicle. It's a custom 6x6, right? It's got six wheels, full power, individually articulating. I dropped a Hellcat engine in this, twice supercharged.

I mean, the thing is an absolute beast! Do you really think I paid for this? Do you think I went into debt for this vehicle? No! Guess what? I bought it all off of my leveraged assets—all of my real estate.

You see, a consumer is going to buy a house and do well over time, like I shared at the beginning of this. But an investor says, "If one works, then why wouldn't you do five? And if five works, why wouldn't you do ten? And if ten works, why wouldn't you want to do 100?"

You see, the more you own, the more cash flow you have. But the moment you get trapped in this mindset of "pay stuff off," what you start doing is you start prematurely retiring debt.

So think about it: let's just say that you bought five houses. You used leverage. You're like, "Man, I had this debt I was going to pay it up," and said, "I bought five investments, and now they've returned a quarter of a million dollars to me. I could now pay off student loan debt. I could pay off credit card debt. I could put some money in savings."

But if what you did worked, wouldn't it make more sense to take the quarter of a million and then go and buy a whole bunch more houses?

This is how I got to 5,000 houses, and this is how I got into a level of abundance with cars like this, private jets, living in mansions.

It's not about the materialism; it's not about the money. It's a philosophy, and it's a strategy. You're either putting your money in parking in places where it can't grow, or you're putting it in places where it can.

So the moment you get into a "pay things off" mindset, you're basically saying, "I'm done with growth."

I don't think you should ever be done with growth.

Understand the ultimate game plan of real estate. I remember after I became financially free from real estate that I had two neighbors that moved in my neighborhood. One of them had started their real estate business 50 years earlier, and now their son lived in the neighborhood and that family was worth over a billion dollars.

The other neighbor that moved directly in next door to me had started 20 years earlier and now is worth hundreds of millions of dollars. How did they do that, and how are they making all of this money tax-free?

I got news for you: the Constitution of the United States and the way many governments work around the world is that owning real estate is the pot of gold at the end of the rainbow.

It's the biggest tax benefit; it's the biggest write-off.

And it's for these two reasons that make it all possible.

If you want to know how real estate grows over time, it's all about how to never pay taxes because you understand if you hold an asset for a while and then sell it, guess what? There's capital gains.

You're going to owe the government a lot of money, and then the rest of it goes to your ordinary income, and you have to pay taxes on it. And rich people don't do that.

Let me teach you what wealthy people do. There are two strategies that they're going to leverage so they don't have to pay taxes. They're going to defer them.

The first one is what is called a 1031 exchange. I typically will hold a property for five years, maybe seven, sometimes only three, because I go into a really hot market.

I have a strategy; there's a link below where you can learn about partnering with me, and I'll do all this for you. But what happens is, after we've held it for five years, we've made a grundle of money on our ROI; we've gotten a great return, and if we were to sell the property, we'd owe a ton of taxes.

Instead, there's a special code that the IRS provides called the 1031 exchange. It means that I can sell the property and there's a process that within six months if I will take all of my winnings and dump it into one or more other properties, guess what happens?

I don't have to pay the taxes.

In other words, one property became more properties, and essentially it is a tax-deferred event.

Well, what happens if one turns into five, and then five turns into 50, and 50 turns into 500? At some point down the road, if you sold everything, you'd have a crazy tax bill.

But you know why wealthy people never sell everything? Because the cash flow on all of that real estate is so big that they'd be stupid to sell it. Their ROIs have multiplied—sometimes you're making quadruple-digit or bigger ROIs. They don't want to sell their real estate.

Which leads to strategy number two. What if I own a really great piece of property, and I want to sell it? Did you know that you can go to the bank and do a cash-out refinance and that this is a non-taxable event?

It is a tax-deferred event, just like a 1031 exchange. So I buy a property for $200,000, and it's now worth $400,000. I can keep the property, pull $100,000 out of it, not pay taxes on $100,000, and go buy two more properties.

What's happening now is I'm keeping the real estate instead of selling it. I'm deferring the taxes as I keep expanding.

These two strategies right here—done correctly—lead to that.

So here's my question: If I could show you how to buy a property and over 20 years turn it into a multi-million dollar portfolio without using any time, effort, or energy essentially from you, would that interest you?

Well, I'm going to tell you right now there's a link below where you can learn about partnering with me, and I'm going to show you how to tap into a game plan where wealth becomes a guarantee, where wealth becomes inevitable, and it keeps expanding, and it forces you to become a legacy player.

How do I generationally pass this on to others? That's different than the old school mindset of "let's pay this off." That's consumer thinking.

It's time for you to subscribe and upgrade to the way investors play. If you're new to my channel and you don't really understand investing, I created an ultimate guide.

I shot this short video; it's right here and it will literally show you the A to Z, the soup to nuts, how you do it so you can crush it and create this wealth for you, your loved ones, and your family.

Think about it this way: If the bank says you have to put 20 percent down...