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!      

11 comments:

stoicinvestor said...

I share your same feelings about debt, I think it's all bad. I'm now trying to figure out a way to tackle a few more real estate projects as another flip or a possible rental. It's hard to do without taking on debt. Any thoughts?

change is a good thing said...

WOW! Very impressive! I look at all debt as bad as well. There is something truly freeing about saying you don't owe anyone anything. At least I think that's how I'm going to feel when I finally get there. :) Great job! Keep it up!

FerdiS said...

I applaud you for your tenacity! Getting rid of debt is certainly a great goal to have. Having said that, I don't think all debt is bad debt.

If you can earn 10% per year return on investment with a business endeavor, wouldn't you borrow money at, say, 5% to fund that investment?

Mortgage debt (assuming today's rates) is not bad, either. There's the tax benefit you get for mortgage interest payments. Also, inflation works in your favor, as, generally speaking, real estate values keep track with inflation over the long term. And, you have to think about the time value of money, too. $1,000 paid 10 years from now is worth less than $1,000 paid now.

Pay off my rentals said...

@Stoicinvestor
Glad to have you stop by. I have used debt as a tool to increase my number of rental houses. However, a more conservative approach might be to buy a fixer upper as your personal residence every few years. Convert the previous home to a rental and roll those rental payments into the new purchase for a quicker payoff. You can remodel and pay off the new acquisition quickly capturing while also taking advantage of the lower interest rates available to homeowners vs. investors. That may take longer, but it is conservative and comfortable for many who successfully do that. I look forward to keeping up with your progress.

@Change is a good thing
Thanks so much. I fantasize about the day when I have no mortgage payments and am living off the rental proceeds. You have to visualize that often and in total clarity to keep your determination strong and in focus. Let's get it done together!

@FerdiS
I appreciate your approach. I, of course, agree to some extent. However, while my comment about now seeing ALL debt as "bad debt" was meant to be more subjective and reflective of my new mindset, I will argue that ANY debt is an Achilles heel. So-called "good debt" amounts to a vulnerability that you're willing to accept, but at the risk of blowing up in your face. We only have to look back a few years to see how many families were damaged by so-called "good mortgage debt". I would argue that debt is more like a tool that can be wielded in a productive or dangerous manner depending on the user. But there is always the inherent risk of defaulting when your income stream dry up due to injury, economic crashes, illness or ....

I would prefer to call student loans and mortgage debt "tolerable debt" rather than "good debt".

Would I mortgage my home at 5% to fund a POSSIBLE 10% return on investment? NO. That would be an unacceptable risk for me.

Mortgage interest tax deduction as a reason for taking on debt??? I believe that to be a failed argument that I won't waste the digital ink to refute. You can read plenty about that elsewhere.

So, while appreciate the "good debt" argument (after all, I've used it to get where I am now), it is always risky and therefore, in my mind, "bad".

I think I'll have to write more on this going forward. Thanks for stopping by and adding some breadth to the discussion!

Joel said...

Hey, I had a great time reading your website. Do you have an email address that I can contact you on? Thank you and hope to hear from you soon.

Regards,

Joel
JHouston791 gmail.com

Keith Park said...

It is really impressive seeing your progress with paying down your mortgages. Just like following other reduce and eliminate debt or dividend investors increase their portfolio and dividend income it truly is inspirational to see that we all have the power to take control of our financial lives no matter what our income and socioeconomic status are.

Asset-Grinder said...

Good work grinding away that debt. That is a lot of property there. Great passive income

Steve said...

I've been waiting for more posts! Great to have you back! You're an inspiration on paying off mortgages.
- Steve, LiveSmartNotHard.com

Pay off my rentals said...

Thanks, Steve!

Very kind. I'll take a run over and check out your site. Intriguing title.

We moving as strong and fast as we can. Getting close to another payoff and now's no time to wear out. The reward comes only when you cross the payoff finish line and get to finally keep the payments for yourself.

Stop by anytime!

Barry Sutton said...

That’s true! Almost nothing can go wrong with a solid plan at hand. And it's great that it worked well with you, especially since you're paying for two mortgages at once. Just keep following your plan and for sure, time will come and you will pay it all off. And besides, if things didn’t go as you have planned it, you can always regroup and use that information to make an even better plan. Good luck!

Barry Sutton @ Iron Point Mortgage

Realtor for the People said...

I love your posts! I have 4 rental properties that have mortgages and recently decided to pay them off and be financially independent too! With any luck the stock market will be down and we can start grabbing great stock and really get the snowball moving!