Thursday, May 29, 2014

My Rental Payoff History ---Update - June 2014

If you've read the last eighteen months of my Rental Mortgage Payoff blog posts, you'll often see that I speak of three mortgages (now two) that we are working hard to pay off.  The fact of the matter is that when we reach our goal of paying off the remaining mortgages, we will have paid off a whopping $360,000 of real estate which we purchased between April, 2004 and February, 2010.  In fact, we were on such a real estate investment tear that we bought 4 houses in a span of only five months back in 2004!  At that point in my life I really knew what I wanted to do when I grew up, and "Mr. Real Estate Investor" was my name.

Excluding a couple of other houses which we flipped for profits during that period, we were expecting to pay these puppies down over the next THIRTY YEARS.  At the time it seemed like a great plan.  Well, as is frequently the case in personal finance, times change and plans evolve. 

For example, a couple of years ago I decided that beginning with our personal residence we would eliminate ALL mortgage debt from our lives.  ALL OF IT.  We were already "debt free" when it came to consumer debt.  But as liberating as that can be, I don't view that as true freedom.  In my mind, even when one is Consumer Debt Free, the Mortgage debt is like a terrible aftertaste that lingers after you've spit out a mouthful of something rotten.   So, being consumer debt free wasn't good enough for me.  No, sir.  I decided to completely rinse away all lingering mortgage debt aftertaste and get a fresh start.  I wanted to be truly debt-free.  There was no so-called "good debt", it was all bad.  Thus, this blog was born.

Mortgage debt payoff history
We currently own a total of seven houses.  Six are single-family rentals and one is our personal residence.  They range anywhere from a 420 square foot studio house (which we paid cash to acquire) to a 1558 square foot 3 bed/2 bath home sitting on an acre of land.  The complete mortgage payoff history looks like this: (Arranged by order of payoff date)


HOUSE      DATE BOUGHT       AMNT PAID          DATE PAYOFF     LENGTH     BALANCE
---------------------------------------------------------------------------------------------------------------------------
Rental 6              7/2004                 $11,500               PAID CASH                 0                   0              
Rental 5              5/2005                 $44,000                     8/2007               2 yrs. 3 mos.     0
Rental 4              9/2004                 $30,400                     2/2012               7 yrs. 5 mos.     0
Rental 3              6/2004                 $56,000                   12/2013               9 yrs. 6 mos.     0  
Rental 2              4/2004                 $65,600                      -----                      -----           $39,654 
Rental 1              6/2005                 $77,000                      -----                      -----           $65,488
Residence          2/2010                 $74,700                     9/2011               1 yr. 7 mos.       0
=======================================================================
TOTALS:                                       $359,200                                                                 $105,142


As you can see, we've paid off $254,858 (or more than a quarter of a million dollars) of mortgage debt since 2004.  However, $72,508.00 of that debt has been paid off just in the last eighteen months alone!

When all is said and done in about two more years we will have paid off nearly $360,000 of real estate in approximately twelve years.  Of course, we can thank our tenants for helping is in this grand endeavor.  They have paid for a good chunk of that real estate.

What will we do after we finish this mortgage pay-off-a-thon?  I really don't know.  Like I said, personal finance plans and goals evolve.  The history of this blog is proof of that as I have wavered back and forth at times.  However, what I do know is that we will have more options to choose from.  For example, we could choose early retirement.  How cool would that be? Or, we could continue working and use the rental proceeds to buy more rentals--with cash, thank you very much!  Perhaps we'll choose to diversify our investment portfolio by putting together a dividend growth basket of companies to add to the passive income pool.  What a terribly wonderful position in which to find ourselves in a mere twenty-four months!

True, the nerd math will tell you we've done this all wrong.  We should've put all that money in the market and made ever more money.  NO! NO! NO!  This is better.  This removes the market risks and associated anxiety.  This is TRUE FREEDOM!  In retrospect, I don't regret one dollar spent on this debt elimination plan.  Not one dollar!  You can throw math at me all day long and it won't make a speck of difference.  The plan works for us.  The plan works!      

Tuesday, May 6, 2014

Rev Up the Payoff Engine...again

It's been a nice little hiatus.  Last year was pretty intense having paid off one of three remaining rental house mortgages.  It wasn't easy, but then few worthwhile goals ever are.  Worthwhile goals require sustained focus and determination in order to achieve them.  However, once achieved, the level of satisfaction is hard to beat.  Such was the case last December when I achieved my stated goal and paid off house #1 of 3.  Let's do it again!!!

My next house (House #2) had a balance of  $57,619.00 when I started this blog in January, 2013.  By December, 2013 the balance was down to $54,459.00.  I'm excited to report that I just made a $9,000.00 principle payment yesterday thus reducing the current balance on House #2 to $43,979.00.  When house #2 is paid off by this time next year, an additional $498.01 will be added to my monthly income.  The interest rate is 4.5% on that 15 year mortgage, so any additional payments toward principle equate to a guaranteed 4.5% risk-free return.  Not great, but not bad either.  I, however, am looking at it another way.  $498.01 x 12 (months) = $5,976.12 in annual income.  To see my return in terms of percentage of "cash on cash" return I'll divide the $5,976.12 by $54,459.00 to achieve an 11% annual return.   Granted, that's a very rough calculation, but it helps me to visualize the reward side of the equation.

The income is only half of the equation.  The elimination of the mortgage debt is just as satisfying.  After house #2 is paid off, then all focus will shift to the third and final mortgage on House #3 which currently stands at $65,816.00.  The goal is to see all of this accomplished by July, 2016 or 3.5 years from when I started this Mortgage Payoff Marathon.

Paying off debt while increasing passive income is what it's all about.  By July, 2016 I could theoretically retire early (or be considered "Financially Independent").  My rental income would be in the neighborhood of $2,300.00 per month.  With a paid off house and zero debt that would be doable to be sure.  Likely, I'll begin to put any additional income into Dividend Growth Income equities.  That is where my heart lies.  But I started in real estate investing back in 2004 and will see it through.  While real estate makes for excellent diversification and inflation protection, I'm really looking forward to building a DG portfolio!  I don't want to do both at the same time.  I want to eliminate ALL remaining debt while increasing my passive income; (arguably "passive" as I use a rental management company to care for all the day to day headaches of being a landlord).

So, I'm back, rested and ready to continue with this aggressive goal:  Eliminate $177,650.00 of mortgage debt in only 42 months!  Far less time than it takes most people to pay off a new car loan.  We're now 17 months along with just over two years remaining to achieve our worthwhile goal.  At this time we are exactly where we're supposed to be.

We'll try to keep a balance while achieving this goal.  For example, we intend to travel to England and Ireland later this year and Costa Rica the next.   Fun times with good friends will keep us from burning out along the way.  Let the Marathon continue!