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!