Monday, February 25, 2013

Update - March 2013 (Early)

The "March" onward continues (pun intended).  We made our mortgage payments a week early.  Nothing wrong with capitalizing on a little more interest savings, right?  Plus, we get the thrill of watching our debt drop by the thousands.  Now that's what I'm talkin' bout!

 

The Stats:

 

Jan 1, 2013                            March, 2013                     Amount Paid Off
==========================================================
 House #1 - $70,908            House #1 - $70,287                  $     621
 House #2 - $57,619            House #2 - $57,054                  $     565
 House #3 - $49,123            House #3 - $36,173                  $ 12,950
 -------------------------------          -----------------------------                ----------------------
   Total:     $177,650                           $163,514                   $14,136 (-7.9%)

That's a 7.9% reduction of our total rental property mortgage debt in three months.  It feels good to see it decline so significantly.  The lowest of the three, (the one we are snowballing), has been reduced by 26% in three short months.  Previously I had miscalculated that we would have this house paid off by the end of the year, but it now looks like it will be January of 2014, barring the inevitable unforeseen.

 

INCOME STREAM(S)

 

On the February update where I mentioned, "There is a part of me that would love to invest all these extra payments in Dividend Growth stocks, but we have a well thought out plan and we are determined to stick to it".  Someone commented that he felt I should do both since it would be better to fund another income stream.  That is a valid point.  However, in addition to my response, I should have pointed out that each house is an "income stream".  Even during the worst timing (including the housing bust of 2008 onward) I've never had more than two houses vacant at any one time.  It is highly unlikely that I would ever see more than 3 of our 6 rental houses vacant at any one time.  There is protection in numbers, especially when those "numbers" happen to be individual income streams in themselves.


Additionally, there is a degree of protection that is built into the numbers.  Every month 8% of the gross rents is set aside and left in the bank to cover the inevitable vacancies that occur.  Those monies can be drawn upon during vacancy periods to supplement our monthly cash draws when I reach the point where I will be relying on the cash flow to fund full retirement (I am currently semi-retired).


This pace is frantic and leaves little room for error in our monthly budget.  We have some traveling coming up this Summer (Alaska) that we will need anticipate.  We do have airline miles stored away and some vouchers that we're holding in reserve from having volunteered to be "bumped" on some flights.  Additionally, I do have a "secret weapon" which I'll probably talk about during the next monthly update.  Unfortunately, it's use comes at a cost.  The most important tool in the arsenal is controlled spending.  Like a tape measure in a carpenter's tool belt, it's the primary tool most financial bloggers are skilled in using on a regular basis.  I am still needing to master mine.


So far, so good.   Feel free to comment and let me know what you think.  What are you doing?  Share your story. 

Sunday, February 3, 2013

Update - February 2013

February's rental mortgage payments brought the mortgage balances down a little.  What was really cool to see was the effect that the unexpected $9,000 additional principal payment we made in January had on the interest for February.  We applied all of the 9k payment to the lowest of the three mortgages:

Previous Balance of the lowest mortgage (January, 2013):  $49,123 
Principal & Interest Payment: $424.57 (Principal: 239.46  Interest: $185.11)

After making the $9,000 principal payment the February payment breaks down as follows:
Principal: 274.11 Interest 150.46

That means we saved $34.65 in interest and thus the same amount was applied toward principal reduction.

Following our February mortgage payments, our balances are as follows:

House #1 - $70,598
House #2 - $57,337
House #3 - $39,848
--------------------------------
Total:       $167,783

As of January, 2013 the balance of our rental properties totaled $177,650. We now owe $167,783, or $9,867 less than we did the month earlier.  That's a 5.6% reduction of mortgage debt.

This is a wonderful start and we are pleased.  The lowest balance should--barring unforeseen budget busters--be paid off by December of this year.  Then, $400.00 of the principal and interest savings will be snowballed into House #2 thus speeding up its payoff.

There is a part of me that would love to invest all these extra payments in Dividend Growth stocks, but we have a well thought out plan and we are determined to stick to it.  Even as the DOW rose above 14,000 last Friday, I console myself with the knowledge that my ROI is not less that 4.375% on any money directed toward paying off the mortgages.  When once I have paid off these mortgages, I can choose to spend or invest that which was previously sent to the bank.  The freedom will be ours to choose!