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.




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. 


The Executioner said...

When I was paying off our mortgage, I noticed that there was no partial-month benefit of submitting an extra payment. It was either applied to the current month or the following month (based on the receipt date) and interest was charged accordingly, one month at a time. I believe for us the cutoff date was the 15th. Not sure how your lender does things -- you should investigate.

I think you are doing the right thing by paying down your debts instead of investing your surplus. You'll make an immediate, guaranteed impact on your cash flow by early 2014 (or as soon as the first house loan is retired). Investing carries no such certainty (unless you were to buy some low-yielding fixed income product which probably wouldn't pay you more than the rate of return on the savings from your mortgages).

Pay off my rentals said...

Welcome back, Executioner! could be right (unfortunately) about not receiving a partial month's credit on interest. I will check this out.

Thanks for the encouragement to stay the course regarding mortgage paydown vs. equities investments. I like both options, but, as you correctly state, when in comes to guaranteed returns 'investing in the market carries no such certainty'. Come early 2014, I'll receive the deferred payoff: An additional $424.57 every month that can be used toward the next mortgage in addition to the security of knowing I can't default and lose the house due to some unexpected economic tsunami.

Thanks for the comments!

Anonymous said...

We're paying off our mortgage (not investing) as it will either save us (mortgage payment) or give us (rental income) £600 a month.

It's a personal choice - I know from experience we're much better attacking debt than building savings (for now).

Good luck, like the idea behind your blog :)

All About Interest said...

You're doing a great job of paying these off at a very fast pace. One question, do you plan to diversify into equities once these are paid off or do you plan to keep buying more rentals?

I plan to aggressively overpay on my condo rental next year. This year the only real estate transaction I might have will be to refinance my primary mortgage at a lower rate. The reason for this is that I already have a lot of money tied up in real estate and I want to bring the value of my dividend growth portfolio to the same level as my real estate.

Good luck!

Pay off my rentals said...

All about interest,
It is my intention to move all new investment monies to Dividend Growth stocks AFTER we pay off the these last three mortgages. That will give us 6 rentals, plus our paid off personal residence. That's probably enough real estate for us. Having said that, I like rental real estate, especially when it's managed professionally (as ours is). I also like the idea o commercial real estate.

However, if I can invest heavily in dividend stocks for another 10 years, that will give us some very nice diversification and a solid passive income portfolio going forward

Mark Ferguson said...

I use the same technique! I have six rentals that I am snowballing the cash flow from. I am trying to buy as many as possible to get the snowball effect as large as possible. I am also blogging about my progress.

Tasha Reeves said...

One of the best thrills one could probably get is seeing his or he debts drop down substantially. I’m happy to know that’s exactly what’s happening for you. So far, so good, eh? I hope that amazing progress will continue to go on, until you’re finally free of these financial burdens. Good luck!

Tasha Reeves @ WCMTG