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!

2 comments:

All About Interest said...

I'm impressed with how quickly you are paying these mortgages off! Six rental properties is is incredible.

I am curious how do you have your rentals set up for taxation and liability purposes? I mean do you have them set up as a LLC or other taxable entity? I only have two rentals currently but am looking into ways I can set them up to save on taxes and protect myself from lawsuits.

Pay off my rentals said...

Hello, All About Interest, and Welcome!

Thanks for stopping by. We are not set up as an LLC. All these properties are in my and my wife's name. I share MMM's view and think the whole worry about lawsuits is overblown--Possible, but rare. HOWEVER...we do carry a $1,000,000 umbrella policy on all our rentals. It is inexpensive, averageing <$40.00 per house annually. I feel that suffices and keeps things simple. I also use a property management company, so they know how to stay out of trouble.

As to taxes, not sure what more one can do. Deductions are pretty straight forward for rental real estate with pretty much everything being deductible. One has to decide whether to be an "Active" or "Passive" investor in order to decide if he wants to deduct losses against salary income (Active RE Investor) or passive income, i.e. other investment income, dividends, distributions, etc.

It's worth researching which route you desire to take depending on the source(s) of your income. For example, you can use a property management company and still be an active RE investor.

I hope you stop by and check in from time to time.