Paid Off My Rentals! Goal Achieved! FI Declared!

PAID OFF MY RENTALS!

The title says it all.  Earlier today I took a wad of $100's (43 of them to be exact) and visited my local mortgage company.  I walked in the door, handed over $4,279.22 and in so doing paid off the final rental house.  I am now officially debt free (aside from a fixed interest credit card loan I arbitraged for a higher tax refund).  Just over three years of blood, sweat and tears...Okay, I exaggerate a little.  But as you can imagine, it wasn't easy by any stretch of the imagination.

In doing so, however, there was no drumroll, no trumpet blast marking the occasion.  I never even got a "congratulations!" from the mortgage office secretary who handled what would prove to be my last mortgage related transaction from the bank.  But it's okay.  I know what I accomplished with my three plus years of sacrifices and determination.  My laser focus hit the bulls-eye.  I'm proud of the accomplishment and no anticlimactic secretary is gonna take that away.  No, sir!

GOAL ACHIEVED!

I beat the stated goal of paying off 3 rental mortgages totaling $177,650 in 42 months by three-and-a-half months.  I now have an additional $1,476.46 in my pocket each month.  That is now added to the previous passive income and it is enough to declare myself... 

FI!

I now work because I want to.  I don't have to keep a job to pay my bills.  My passive income can take care of us now.  I'm not rich.  Don't even have a savings account.  But I currently have enough passive income to live comfortably.  With all my volunteer work, I'll be busier than ever--doing the things I want to do.  Ahhhh!  Gotta admit...it's a great feeling.  And yet it, for all the hype, it feels just a bit anti-climactic at the same time.  Weird.  Must be a combination of having blogged about this eventuality for the past three years and just not having had enough time to let it all sink in.  I don't know.  I'm sure I'll gradually feel the reality instead of the theory sink in.

WHAT NOW???

That's easy.  I've been wanting to build up a diversified, dividend growth portfolio for some time now.  I've learned a lot about myself over the years and one lesson I've learned well is that I don't have the discipline to ride out the ups and downs of the stock market while I have debt hanging over my head.  Now that the debt's gone and my monthly financial needs are cared for outside of the stock market, I can comfortably ride out the volatility while collecting dividends which grow faster than the rate of inflation.  I still have a business bringing in a fair amount of income.  Income that will now flow to our dividend growth portfolio so that we can diversify into another passive income stream.  Sounds like great fun and a personal challenge to boot!

CONCLUSION...or...is it?  A few final observations about getting out of debt.

Don't know.  Maybe I'll write an occasional post describing how I'm meeting the above challenges.  Either way, this is THE blog post I've been waiting more than three years to write.  I hope that my posts will encourage others pursuing FI and debt-free living.  Getting out of debt is not easy.  Getting into debt is about the easiest thing to do in our consumer-oriented society.  It's like walking downhill, whereas getting out of debt is just the opposite.  Uphill all the way.  Exhausting.  Daunting.  Excruciating at times.  It tests your resolve each and every month.  I just kept remembering that time passes.  I needed to do my part and time would take care of the rest.  And, true enough, here I am.  It is done.  Previous posts layout my method of staying motivated.   If  you want or need motivation, just go back to the beginning - January 1, 2013 and read forward.  The story technically goes back further than that and the debt deeper than $173k. I was actually closer to $300k at one point.  I started with my personal residence and then just kept paying off houses one by one letting the snowball effect help me along the way. 

MY REQUEST OF YOU

Share your stories here.  I'd love to read them.  I was motivated by one particular blogger who had accomplished that same goal of paying off and blogging about his monthly progress.  Help others by sharing the good, bad and ugly of it all.  Just writing and sharing will help you stay the course.  Blog for accountability.  It helps.

Here's wishing the best to all!  Keep up the fight.  It's worth the sacrifice.

END!

Update - February, 2016 - Sooooo Close!

Paying off large amounts of debt is like moving a massive pile of dirt with a shovel.  It seems daunting at first, but you simply have to roll up your sleeves and get started.  At times it gets exhausting and discouraging when you've worked your butt off and still see a huge pile of dirt remaining.  At times, you might get to borrow a bigger shovel, or even a tractor and remove huge amounts of dirt all at once (such as in the case of a windfall, like a tax refund or a gift or selling an unused or unnecessary item and applying that money toward the debt).  But those moments are few and far between.  At many points along the way you just have to just take a deep breath and resolve to continue.  Slowly but surely you see that pile disappear.  Three years of shoveling is a lot of work.  The bottom line:  It's the sustained effort that gets the job done.

February turned out to be an unexpectedly fantastic month on the payoff front.  While we were beginning to hold out hope for the possibility of beating our original July, 2016 payoff goal by a month or possibly two, we voluntarily took a pay cut that began to erode those chances.  However, we got our hands on a bulldozer to move a large amount of debt...our janitorial company had been accumulating some additional monies in the bank over the past year and all of us owners met and decided to take a significant distribution totaling $6k each.  Since my lovely wife in one of the owners and totally on board with the payoffmyrentals plan, we pooled the distributions and plopped all $12k down and cut a couple of months off the goal.  This was in addition to the $4,600.00 principal payment already set aside for February.  Therefore, we paid an additional $16,600 on the balance.  In all honesty it feels painful and satisfying all at the same time.  Like taking too big a swig of Coca Cola.  It burns, but it burns good!

That leaves our pile of dirt, er, I mean, debt at only 4% of where we started just over three years ago.

Jan 1, 2013 (Beginning Bal).                                           February 1st, 2016                                Amount Paid Off

==========================================================================

House #1 - $70,908                                         House #1 - $7,664                       $63,244
House #2 - $57,619                                         House #2 - $ 0                              $57,619
House #3 - $49,123                                         House #3 - $ 0                              $49,123
-----------------------------                                    -----------------------------               -----------------------------

Total:       $177,650                                                          $7,664                      $169,986 (-95.68%)

We're so stoked over this progress.  It's not hard for me to remember back to when we started on this debt payoff journey.  That mountain of debt loomed large, blocking out the sun while casting a dark shadow over our future plans for FI.  Now it's a mere wheelbarrow's worth of debt.  We should be able to finish this off in two more months.  So, we are officially calling April 1st, the projected end.  That would take the original 42 months required down to 39 months.  As a result, April 1st will herald the official proclamation of FI for this family.  If that isn't incentive, I don't know what is.

The bank will no longer extract $553.88 of our precious resource every month.  We keep every last cent and use it to enjoy freedom, independence and peace of mind.  Priceless.  There's great satisfaction to finishing a project.  Believe me, I've started many over the years only to allow life and distraction to get in the way and give up mid-stream.  NOT THIS TIME!  This project will be seen though to its utter completion.

Carry on, everyone.  Keep the vision in focus.  Let your sustained efforts keep you on track and join the chorus of the many thousands who have been able to enjoy the tranquility of debt-free living.

Update - January, 2016 - Minimilism

What a difference a couple of months makes. 

• Two months ago we were living in a paid-off house.
• Now we live in a paid off 29' R.V.(2006 bumper-pull trailer).

This is a move toward a more simplified, liberated, freer lifestyle.  What's really amazing is that my wife is totally on board (though not without having had to overcome some typical reservations, i.e. Where will we put all of our clothes?  Where will you put your office?  Where will I go when you start to snore?).  We've been able to resolve everything but the last concern.  That will resolve itself when I drop ten pounds.  Now I have no excuse since we are literally parked across the street from a gym...dang it!

We currently own seven houses.  We've lived in two of them over the years.  But now, living in what amounts to a "tiny home", we couldn't feel more content.  That's due in part to the fact that we have a reason, a purpose for this life-style adjustment:  We want maximum mobility at minimal cost.  We want to be able to travel and move around at the drop of a hat.  We want to live on a small passive income.  We don't want chaos and clutter.  We don't need a lot of room to be happy.  And you know what?  It's working.  For example, we just returned from a couple of weeks in Costa Rica and we're getting ready to fly to California for another week and a half to visit my wife's parents.  I'll likely do some volunteer work in New York this Spring for a month or so, and the list goes on.

We are beginning to reap the rewards of our rental mortgage payoff journey.  But that goal has always been combined with the reduction of spending and increase of savings.  As our budget now stands, we live on just under $2,000 p/mo.  That includes $670.00 per month for a high-deductible health-care plan.  Our cost for the ACA plan rose 50% for 2016.  That was a shocker and one that caused me a mini-fit.

Mind you, this is all completely voluntary as we still reap the rewards of a business we own and draw about 75k a year from.  This money has largely been earmarked for the rental mortgage payoff plan that is the subject of this blog.  We have that business on the selling block and are readying ourselves for the loss of most of that income going forward.  If it sells, than we'll pay off the balance of this final mortgage.  If not, then we'll stay the course with the high monthly principal payments and just invest the rest until things change. Either way, it's all good. 

Speaking of that final mortgage balance...

Jan 1, 2013 (Beginning Bal).                                           January 1st, 2016                                Amount Paid Off

==========================================================================

House #1 - $70,908                                         House #1 - $24,733                      $46,175
House #2 - $57,619                                         House #2 - $ 0                              $57,619
House #3 - $49,123                                         House #3 - $ 0                              $49,123
-----------------------------                                    -----------------------------               -----------------------------

Total:       $177,650                                                          $24,733                     $152,917 (-86.07%)

Looking back over last year, we have paid off nearly $40,000.  The balance last January was $63,163.  It now stands at $24,733.  Wow!  That's a lot of smackers thrown at the mortgage!

While we sent an additional $4,000 to the principal this month, that's not as much as we should've sent.  We decided to maximize the tax advantages of sending the final contribution of more than $2,000 to finish out the 2015 HSA contributions.  I feel good about that.  Also, we had tiled the floor and shower and replaced the water heater of our house before moving out.  We also paid for the Costa Rica and California trips on top of everything else.  That set us back a bit.  However, I believe we are looking forward to a hefty principal payment for next month as we'll dip into the rental monies to add to our payment.  I relish the thought of getting that balance under $20k.

This is the final stretch.  Three years ago when I started this blog we said we would pay off $177,650 in just forty-two months.  We are now down to the last six months and it looks like a checkered flag I see waving in the distance.  Once we pay that last house off, I will officially declare ourselves FI!  The additional $1,476.46 added to our other previous rental real estate income will be more than enough to make that declaration.  We're turning the page to a new and very exciting chapter of our lives.

In the meantime, let's all make this a productive year and stretch forward toward the realization of our goals.  I know we're not the only ones out there working hard, making sacrifices and displaying resolute determination to achieve financial freedom.  Let us know how your doing.

Update - November, 2015 - Keep on truckin!

Another few months have passed and I thought I'd update the few of you out there that may still be following my Rental mortgage payoff journey.  I am now nine months shy of the goal date which also means I'm 33 months into this marathon.  I now have far more mortgage payoff miles in my rearview mirror than I have left to go.  Time is doing what time does best...keeps moving relentlessly forward and stands still for no one.  It's both a friend and an enemy.  A friend to those with a plan and the determination to stick to it, but the enemy of those who just live from one day to the next, never planning beyond tomorrow.  Okay, okay enough waxing philosophical!

I can't tell you how often I thought the whole debt payoff process through from several different angles and entertained different ideas on how to accomplish it over the past several years.  I've gone back and forth on saving and paying in lump sums to sending every spare cent in the minute it cleared my bank account.  At times, I've decided to invest, only to end up selling the investments and sending those monies to pay down the mortgage.  I keep coming back to the simple realization that I've never wanted anything so badly as I want to see this goal through to its completion.  Having said that, I've just sent another $8,900.00 in addition to November's regular payment to the bank and taken a chunk out of this last mortgage.  As of November 1st., the balances look like this:

November Payoff Stats:

Jan 1, 2013 (Beginning Bal).                                                        November 1st, 2015                                Amount Paid Off

==========================================================================

House #1 - $70,908                                         House #1 - $29,639                      $41,269
House #2 - $57,619                                         House #2 - $ 0                              $57,619
House #3 - $49,123                                         House #3 - $ 0                              $49,123
-----------------------------                                    -----------------------------               -----------------------------

Total:       $177,650                                                          $29,639                     $148,011 (-83.31%)

My last update was in August and the balance was $39,824.  It felt good to be under $40k but it feels even better here in November to be under $30k!!!  We just keep on truckin' and it just feels right. 

It's always super cool to see what the accelerated payoff plan does to the Principal/Interest ratio.  Just a few months ago back in January when the balance on House #3 was $63,163, the Principal/Interest ratio was $335.60 Principal / $218.28 Interest.  Now, having paid the balance down to $29,639 the ratio stands at $450.45 Principal / 103.43 Interest.  That's an additional $114.85 applied toward principal every month.  $114.85 each month  ($1,378.20 yearly) more money going (or "staying" if you prefer) in my pocket instead of going into the bank's coffers.

The reward is just around the corner and the payoff will have been well worth the sacrifices.  I'm on track and dare I say, may even be able to meet my mortgage payoff goal sooner than next July.  $177,650 paid off in forty-two months equates to an average of $4,229.76 per month applied toward the payoff.  Of course it hasn't been quite that linear, but it still amounts to a great deal of money applied month after month after month.  A short sighted person only looks at how they could spend an extra $4,200 and all the nice things that would buy.  A far-sighted, big picture kinda guy sees getting out of debt and converting that into a nice income as the reward in itself. 

I obviously haven't been posting every month.  I'll post every few months when it seems worthwhile to update everyone.  No money being made or sought on this blog.  It serves the purpose stated at the top of the page and hopefully encouraged a few who are travelling the same path toward FI and debt-free living.  To all of you I can only say, "Keep on truckin!"

Countdown to FI

10...9...8...7...6...Financial Independence!!!!!!!!!

FI is fast approaching. The "Countdown" has begun.  That's the day when I can and will officially declare myself "Financially Independent".  What does that term mean to you?  It's certainly better than "retirement". Why?  Because retirement often evokes a picture of someone in his 60's or 70's lazing about, playing golf or bridge all day long.  For many, it can even create a negative image of someone who has no real purpose in life, drifting along in a life raft of leisure (Wait a minute!  What's wrong with that?) 

While "Financial Independence" tends to simply say that you no longer have to earn a living.  You're no longer trading hours for dollars.  You've already earned it.  You now get to pursue  whatever work, passion, hobby or [insert productive activity here] you darn well desire.  Full-time, part-time, what is time for that matter? Heck (pardon my language), do whatever you wanna do!  You're the master of your time.  Unlike many people's vision of retirement, you've not punched your last timecard and now ride off into the sunset.  No!  You are just getting started, but now YOU call the shots.  YOU decide how you'll spend your time without a job or a boss's interference, (unless you so choose).   That's the flipside of our reason for having undertaken the goal to pay off our last three rental property mortgages.  The other reason was to relieve ourselves of ALL, that's 100% of all debt.  What steps are we taking to live on our rental income?

New budget - Categories with amounts.

We have refined our budget to include all the little incidental expenditures that can bust a budget. Clothing, Property Taxes, Home Insurance, Home and Auto Maintenance to name a few. Beginning this month, we are attempting to live on the amount of income we anticipate from our rentals.  How much is that?  Approximately $2,323.00 per month or $27,876 per year.  That's the conservative figure.  It already takes into consideration the cost of Taxes, Maintenance, Insurance, Vacancies and professional property management.  This number could even improve by several hundred dollars a month if we decide to rent our personal residence and live in our 31' RV.  Decisions, decisions... 

It gets even better because we haven't even considered the passive income we'll be receiving from our Commercial Janitorial Company until we decide what to do with it.  Right now that additional income is fairly significant.  We'll likely convert that money to dividend growth equities and further add to our passive income with another income producing stream. 

Minimalism a.k.a. "Simplification"

What else will we be doing during the remaining nine months counting down to FI?  I'm taking a real interest in the Minimalist way of life.  No, I'm not talking about extreme minimalism where you own 100 items or less.  But I am talking about really simplifying and culling out those things that take up space.  Everything we own has a price attached.  You either have to clean it, maintain it, insure it, protect it, think about it or at least make room for it.  All those items big and small add up to a lot of clutter, mental and otherwise.  I want to minimize those things and add to my new-found sensation of freedom.  I want to have more time and energy to devote to things that are important to me, the things that have the most meaning for me.  Minimalism sounds like a worthwhile path to pursue during this countdown to FI.

Practice and refine for the next nine months

Nine months.  Wow!  It could possibly even be sooner than that.  Either way, this will be a lifestyle transition.  It's a big deal.  Like all other worthwhile endeavors, why not prepare and practice living my future right now in the present. I will have to show more self control with my spending habits than before.  Up to now, I've been able to buy anything and everything I wanted.  That's certainly not realistic when living on a fixed income.   

August Payoff Stats:

Jan 1, 2013 (Beginning Bal).                                                         August 1st, 2015                                Amount Paid Off

==========================================================================

House #1 - $70,908                                         House #1 - $39,824                      $31.084
House #2 - $57,619                                         House #2 - $ 0                              $57,619
House #3 - $49,123                                         House #3 - $ 0                              $49,123
-----------------------------                                    -----------------------------               -----------------------------

Total:       $177,650                                                          $39,834                     $137,816 (-77.57%)

This month I was throwing money at this balance like a man on fire.  Every time I had available monies, they barely had time to register in the checking account before they were quickly transferred.  I made seven separate additional principal payments totaling $9,307.39.  Add to that amount the additional principal portion of  my August payment totaling $415.56 and you see a total reduction to the balance of  $9,722.95.  That's just stinking awesome!  The ability to apply monies that previously went toward mortgage payments is really helping the snowball efforts here. 

One way to highlight that is to look at the Principal/Interest ratio just a few short months ago:  May's principal & interest payment broke down to $340.24 principal / $213.64 interest.  Whereas with the snowballing of payments in May, June and July totaling $20,807.39 the August principal/interest ratio was $415.56 principal / $138.33 interest.  That's $75.32 more towards principal and less in interest every month (before compounding) going forward!  In short, if you divide the saved interest x 12 months then divide by the total principal invested, you arrive at your loan APY (Annual Percentage Yield) interest rate as the rate of return or just over 4.125% APR (Annual Percentage Rate).  Link to APY vs. APR

Compounding debt payoff is almost as exciting and fulfilling as compounding interest income.  The effect on net worth is the same, just different sides of the ledger except that often your trading a lower ROI (Return on Investment) or a lower reward in exchange for removing market risks.  And while that's a calculated trade-off for most who chose to pay off a mortgage over investing those monies, I can't wait to reverse the two sides of the ledger.  ;-)

The countdown has entered the final stage...

Update - July, 2015 - You can do it!

"The man who begins to say it can't be done is often interrupted by somebody else doing it." -Elbert Hubbard

 

Excuses, excuses!  I am often appalled when after reading an encouraging personal debt payoff story submitted by someone who has patiently sacrificed the pleasures of today for a better life tomorrow, the reader responses are littered with the skeptics who spend energy and digital ink condemning the contributor as a liar or exaggerator because in their minds it couldn't be done.  Then there are others who simply must justify themselves and their inability to accomplish something similar because they just don't have it as good as the author.  They may feel better about their lack of success, but in the end they've been interrupted by the man (or woman) who did it.

 

I've been in the debt payoff mode for several years now and I can tell you from personal experience that it's NOT easy.  To be successful you must constantly swim against the current of self-indulgent consumerism promoted by the commercial system whose economic life depends on your living beyond your means.  You fight boredom as the same basic incremental payments seem to ever so slowly whittle away at the mountain of debt month after month for years on end.  You wrestle with discouragement when unforeseen bills such as medical expenses or house and car maintenance costs eat away at your debt repayment efforts.  The list is endless and any one or all the above becomes the fodder of excuse-makers.

 

If that has been your experience, take heart!  You can become the one who by your bold, patient persistence interrupts the naysayers.  Don't let their defeatist attitudes and excuse-making become a source of discouragement.  I've said it before, but the secret to success lies in visualization.  You must be able to see yourself living your new debt-free life.  You've got to imagine the feeling of satisfaction, having reached your goals.  Feel the freedom.  See the better life.  Meditate on the positives.  I find writing this blog helps me.  I frequently go back and read what I've written and I'm amazed at how encouraging that can be.  Associate with like-minded people who are working hard to liberate themselves from the bonds of debt.  Read their stories and rejoice in their accomplishments with the full expectation that your day will come.  If they can do it, so can you!

Jan 1, 2013 (Beginning Bal).                                              July 1st, 2015                                Amount Paid Off

==========================================================================

House #1 - $70,908                                         House #1 - $49,547                      $21,361
House #2 - $57,619                                         House #2 - $ 0                              $57,619
House #3 - $49,123                                         House #3 - $ 0                              $49,123
-----------------------------                                    -----------------------------               -----------------------------

Total:       $177,650                                                          $49,547                     $128,103 (-72.10%)

Well, as you can see, we've paid off $128,103.  That has certainly not been easy.  What could I have done with $128k over the past two and a half years?  Plenty!  New cars, trucks, home remodel, gadgets galore, tons of travel.  We could have become drunk on consumerism without the hangover of debt.  But at times when I'm feeling weak or bored, I just go back and read more on debt-free living and imagine what life will be like by this time next year when I can fully enjoy the fruits of my labors and call an official end to this forty-two month rental property payoff marathon.

 

The battle will have been worth the sacrifices.  I can see that clearly.  Can you see it in your case?  Let me know how things are going in your debt-payoff adventures.  What issues are you battling?  How close are you and what "future reality" helps you carry on in your efforts? 

Update - May, 2015

It's all downhill from here.

Long term goals are not easy to accomplish, especially when you are sacrificing to achieve them.  If you love working-out or running, then reaching goals just sort of happens without any real effort because you love what your doing.  This idea fits in nicely with the saying: "Love what you do and you'll never work a day in your life".  However, reaching a long-term goal involving real sacrifice like, for example,  dieting to lose weight or, dare I say, paying off consumer debts like credit cards or mortgages is certainly a different beast.  It's easy to tire out along the way or get bored over the span of several years as you trudge along ever so slowly reaching your goal.  I know, it happened to me over the past several months since paying off rental property number two in December.  I wanted more excitement, a break from the self-sacrifice we'd been exercising over the previous twenty-four months of mortgage debt pay down.  So, what have we been doing the past four months?

Investing in the stock market

It's no secret to anyone reading this blog that I enjoy buying dividend growth companies.  During the last swoon in oil prices we bought Exxon, Shell, Conoco, Kinder Morgan, BP and BHP Billiton.

We made about a thousand dollars dabbling.  It was fun and I liked the choices over the long term, but despite our success in picking some good stocks at the right time, I just couldn't get past the guaranteed return of mortgage paydown vs. the risk of being in the equities market.  More than that, the real advantage of paying off a rental property is that not only do you get the automatic return of your interest rate savings (4.125% in this case), but you get that plus principal as cash flow, a sort of  "dividend" that comes right to your bank account month after month after month.  In this case involving the third and final rental property the amount of cash flow we'll receive in approximately one more year would look like this:

          Balance on mortgage: $63,149.10

          Principal & Interest:   $553.88 monthly or $6,646.56 annually.

How much would we have to invest in dividend paying stock in order to receive a yearly dividend income of $6,646.56?  Obviously the answer depends on the yields with which you fill your income-producing portfolio.  I'll err on the high side and use the average of the stocks we had purchased above.  After all, energy companies offer some of the richest yields available:

     
Average energy portfolio yield:  4.67%

Amount of investment dollars required to produce $6,646.56 @ 4.67% yield:  $142,324.63

What does it all mean? 

     1.  It means that I would have to invest $79,175.53 more than what I currently owe on this last 

          rental property in order to generate the same return that I can get by just buckling down and

          paying off this last mortgage over the next twelve months.

     2.  If we opted for the dividend portfolio, we would have to accept the market risks and possible

          loss of capital.

     3.  It would take considerably longer to save and invest the additional $80k and reap the full

          dividend reward of $553.88 per month.

So, as you can see, it is worthwhile to re-evaluate what you want to accomplish and when.  In our case, we still want to remove this last vestige of debt and be 100% free.  We also want to get this additional income generated as soon as possible while avoiding the market risks inherent with an equities portfolio.  That day will come, but only after we've reduced or eliminated all other controllable risks to our personal financial profile.

Where are we in May, 2015?

Well, as I mentioned in my previous post and as a result of selling the aforementioned stocks, we were able to make a large principal payment totaling $11,000 this month bringing our balance to $50,809 from $62,149.  That's a wonderful chunk of equity and get's the snowball rolling downhill a lot faster.  I can't wait to see the effect on the interest saved next month and how much additional saved interest is added to that snowball.

We're back and we're as determined as ever to see this goal to its completion.  We have some medical issues looming and those costs will cut into our ability to make some larger payments, but on average we anticipate knocking this debt down by an additional $3k to $4k per month until paid off by this time next year.

Where are we in May, 2016?

Now that's a good question!  I see us claiming the glorious title of "Financially Independent".  We will begin to build our equities portfolio and do more travelling.  WooHooo!  Since our modest house is paid off, we don't have to spend any precious passive income to pay rent or mortgage anymore.  Outside of a modest amount to cover insurance and taxes plus a bit of maintenance, we keep the rest.  That means our housing costs are and will be less than $200.00 per month.  It won't take much to support our debt-free lifestyle and the additional $553.00 per month from paying off Rental House #3 will go a long ways towards supporting our Financially Independent lifestyle.  Looks like the Summer of 2016 will be an exciting one for us.  Let's reach those goals together, shall we?  

Let's get this puppy paid off!

I've enjoyed my time off from blogging about my rental payoff efforts, but it's time to get this done!


Where do we stand now at the end of April, 2015?  Simple:  Two down, one to go.
I owe $62,149 on the last house.  After the last mortgage is gone, I will be 100% debt free with enough passive income (albeit modest) to consider myself financially independent.  That is where I saw myself when I started this trek in January, 2013. 


Over the last twenty eight months or so I've gone through many ups and downs and hit several bumps in the road.  The road to financial independence is rarely straight and smooth after all.  As a family, we have faced and overcome health issues, made major business decisions, travelled to Europe, volunteered our time toward excellent causes and fought the urge to just give it up and divert my attentions elsewhere.  Does any of that ring a chord with you?  Stuff happens, right?  Right!


On the other hand, after reevaluating how far we've come and where we want to be by this time next year, I've decided to roll the snowball down hill again.  We've saved some money and will apply that to next month's principal payment to really get this snowball rolling.  After that I don't really expect many large, lump-sum type payments over the next ten months or so (thanks to the new office building our company decided to build).  Just slow and steady with both eyes on the finish line.

So with all that said, let's get this puppy paid off!

I'll post again next week after the May payment has been made to update the numbers.

Accomplishment and Celebration

Two years later and two houses paid off!
The converging lines are the third rental and the total debt of the three together.
They now have become one and the same.

It has been accomplished.  Another one bites the dust.

Two years and two rental houses paid off.  That's what a plan, determination and time can achieve when these three ingredients come together.  Take away any one of those three basic ingredients and the debt reduction effort will either be at best, severely hampered, or, at worst, fail.

When I laid out this plan two years ago, it was a lofty one:  In true snowball fashion, the plan was to add $3,400 to my monthly mortgage payments (nearly every spare cent we had available) and pay off three rental houses in in 42 months.  The plan was carefully and thoughtfully laid out.  I had run the numbers using payoff calculators and had squeezed our household budget to make room for the fat monthly payments that would be required month after month, year after year to reach the goal.  Now, the second ingredient--Die-hard determination over a period of time--was necessary.  You well know that everyone starts off determined to achieve their goals, but maintaining that determination over a long period of time is where the rubber meets the pavement.  Debt reduction is a lot like running a marathon:  The starting gun sees 100% success rate while the finish line awaits those who were truly determined to finish even if they must cross that finish line limping and puking their guts out. 

Jan 1, 2013 (Beginning Bal)                             December, 2014              Amount Paid Off

==========================================================================

House #1 - $70,908                                         House #1 - $63,163                      $  7,745
House #2 - $57,619                                         House #2 - $ 0                              $57,619
House #3 - $49,123                                         House #3 - $ 0                              $49,123
-----------------------------                                    -----------------------------               -----------------------------

Total:       $177,650                                                          $63,163                   $114,487 (-64.44%)


As for the third and final ingredient (time), well as you can see from the chart above, in twenty four months we have paid off two houses totaling $114,487 of mortgage debt.  That's an average of $4,770 per month!  The snowball kept getting larger and larger.  That's the way it works.  What a fun way to play in the snow ;-)

Of course, our determination was tested all along the way.  There were several adjustments and a fair amount of second-guessing.  Like most, we had months when life got in the way and the additional payments had to be temporarily placed on hold; Not the least of which was a loved one getting diagnosed with Cancer (all is well and in full remission), shoulder surgeries (as in three of them), and then trying to balance out this austere plan with some reasonable enjoyment of life (Our trip to London, Ireland and other vacations).  On the flipside, however, there were those wonderful months when unexpected bonuses were applied in large amounts toward the debt.  It was absolutely thrilling to see balances precipitously drop resulting in interest monies saved.  For example, when possible, we would add any windfalls like bonus distributions or extra monies earned to pay off the balances even more quickly.  On two occasions we were able to make 15k payments.  On one occasion, 10k. and several other 6k to 8k payments on three other occasions.  These massive additional payments really grew the snowball and became encouraging, tangible evidence that we could reach our goals.  In the end, however, it was time that did its job and here we are two years later with two of the three houses completely paid off and the additional available passive income from those rentals just adds more snow to our massive snowball. We now have nearly $1,000.00 per month of additional income that now no longer goes to the bank.  It comes to us like a sweet dividend every month.

Speaking of dividends... A change in direction

As of January 1st. we are changing direction.  Our company is building a new office and it will include a couple of apartments where the owners can live.  This build out is being financed by the company and it means that we will be selling our modest 900 sq. ft. two bedroom house this Spring. 

Then what?  We can use the proceeds from the sale of our house to pay off the remaining rental house in full.  As a result, we finally get to do something we've really, really been wanting to do for years:  Create a Dividend Growth portfolio as an additional passive income stream.  I've mentioned my love for dividend stocks here on several occasions over the past two years, but I was determined to stay the course toward complete, absolute and unequivocal debt-free living by paying off the three remaining mortgages and converting them into income streams.  The payoff of that final mortgage will also mean an additional $553.88 in monthly income and the complete realization of our stated goal:  Pay off $177,650 in mortgage debt and add $1,476.46 to our monthly passive income stream.  The additional $1,476.46 of capital along with the monies we've been directing toward the mortgages can now be redirected toward building our dividend growth equities portfolio.  How cool is that?  Compounding at it's best as our little investment dollars work full-time to make more little investment dollars.  Now that's worthy of a celebration!

If you've ever needed convincing about the merits and superiority of DGI (Dividend Growth Investing) vs. the 4% rule, here are a couple of articles for you to read.  I think it's well worth your time and they convinced me that DGI blows the sacred "4% withdrawal rate" out of the water:

http://seekingalpha.com/article/290289-retirements-4-percent-rule-why-mr-and-mrs-income-dont-need-it-part-1

http://seekingalpha.com/article/290294-retirements-4-percent-rule-why-mr-and-mrs-income-dont-need-it-part-2

If you've been regularly reading this blog or are here for the first time, I hope it proves as encouraging for you to read as it has been for me to post my ups and downs of real-life debt pay down.  Since there are a million bloggers telling the world about their dividend portfolio efforts, I don't have any inclination to blog about my efforts going forward.  It's been interesting and fun.  I've never run any adds on this blog or tried to sell anyone anything.  The true motive behind this Pay off my rentals blog has always been to help keep myself accountable while encouraging others along the way.  I sincerely hope the latter has been as successful as the former.  My intention is to keep it online and accessible as it costs me nothing.  I'll even check in from time to time to address any comments you may leave.

Best wishes to all of you working hard to pay off debt and build a passive income stream(s).

Update - October/November, 2014

October/November is synonymous with falling leaves, but in our case, October/November is just another couple of months of falling debt totals for our rental houses.  We are down to the last two months of paying off House #2 which now sports a balance of exactly $10,000.  The goal, as it stands now, is to make two payments of $5,000.00 (one at the beginning of December and one at the end of December) and have it paid off by December 31st.  How will we come up with ten grand to achieve this?  Just a little bit of financial maneuvering.  Our distributions from our company usually hit my bank account a couple of days early every month.  So, we will simply apply our January 1st mortgage payoff amount to the very end of December and voila! House #2 mortgage will be history.  That will make for a very happy beginning to 2015, don't you think?

Jan 1, 2013 (Beginning Bal)                  October/November, 2014     Amount Paid Off

==========================================================================

House #1 - $70,908                                         House #1 - $63,833                     $  7,075
House #2 - $57,619                                         House #2 - $10,000                     $47,619
House #3 - $49,123                                         House #3 - $ 0                             $49,123
-----------------------------                                    -----------------------------               -----------------------------

Total:       $177,650                                                            $73,833                   $103,817 (-58.44%)

We have surpassed the 100K mark on the relentless march toward complete and total payoff of these rental houses!  At this point the income from the rental houses is really adding wind at our back. As planned, that income is supplementing our payoff efforts in a very meaningful way.  Once the second house is paid off, we will have yet more income to apply to the payoff of house #3. 

When this odyssey started in January of last year, a $177,650 balance seemed so huge and overwhelming.  All I knew at that time was that I had a deep desire and strong yearning to be 100%debt free within 42 months.  It wasn't enough to be just "consumer debt free".  No.  I wanted to be totally, absolutely and unequivocally debt free.  Now while being debt free--excluding the mortgage-- is certainly a laudable achievement, having no mortgage debt in addition to no consumer debt has got to be the ultimate in financial peace.  Add to that the passive income that the rental real estate brings in each month whether I decide to get outta bed or not (kidding...I always get out of bed), and you've got a wonderful recipe for financial independence.

The other thing I knew back in January of 2013 was that if I stayed focused and stuck to the plan, time would take care of the rest.  And it is.  I mean really, think of how time marches on in our lives.  For example, if you're the kind of person that makes new year's resolutions, January 1st, 2014 was eleven months ago.  Nearly a year has passed by.  If you set a goal and formulated a plan, you'd be ELEVEN full months into its execution by now.  Yet, January of this year seems like just yesterday, doesn't it???  So, ask yourself, "Where do I want to be this time next year?"  Where can you be two years, three years, five years from now if you plot a steady course toward debt payoff?  You'll certainly be somewhere because time marches on.  It's an inevitable reality that we can use to our benefit...or detriment.  Before you know it you'll look back and either say to yourself:  "I wish I would've [insert desired goal].... or, "I did it!"  The choice is always ours.  But success stories are being written everyday by people who stop talking and just start doing.  So just do it!

JUST DO IT!

Blog about it.  Post a payoff chart like I did and chart your progress.  Go to the online blogs and shout it out.  They can be a tremendous source of ongoing encouragement because you'll quickly find yourself in the company of like-minded individuals who's successes and failures will keep you encouraged along the way.  In the meantime, see yourself enjoying the pleasure and personal fulfillment of your goal.  See it, feel it.  Use the power of imagination to impel yourself forward toward realizing your goals--be they financial or otherwise.

As for us, next stop...Jan 1st and a celebration of paying off house #2

Update - September 2014

London was brilliant!  That, along with "lovely", were expressions we heard often.  Indeed, London is a culturally diverse city rich in history.  The buildings have so much character that you could spend all your time just admiring the architecture and facades of yesteryear.  My wife and I thought it was a "lovely" place and we would go back in an instant. 

Westminster Palace and The Tower of Big Ben - England

Ireland was also an extremely marvelous country and the cliffs of Moher ("Cliffs of Insanity" as they were referred to in the movie "Princess Bride") were incredible.  Castles dot the landscapes and buildings hundreds of years old are still infants by their standards.  If only my rental houses could last so long...

Cliffs of Moher - Ireland

Cost of 12 day trip (Airfare, Hotels, Taxi. Spending money): ~$7,500.00  

Airfare was paid some months back and I just sent off a payment for the credit card for the remaining purchases.  No carry-over debt from this trip!  It was cash-flowed and that made it even sweeter.  

The people were very kind and we fell in love with everyone.  We can now add Europe to our list of places visited.  To date we've spent time in England, Ireland, Mexico, Guatemala, Nicaragua, Costa Rica, Panama, Colombia and the Dominican Republic.  What tremendous human diversity exists between those places. We wouldn't trade them for anything.  Next stop...Italy.  But that's another story.

SEPTEMBER UPDATE:

Jan 1, 2013 (Beginning Bal)                           September, 2014                       Amount Paid Off

=======================================================================

House #1 - $70,908                                         House #1 - $64,498                     $  6,410
House #2 - $57,619                                         House #2 - $19,418                     $38,201
House #3 - $49,123                                         House #3 - $ 0                             $49,123
-----------------------------                                    -----------------------------               -----------------------------

Total:       $177,650                                                            $83,916                    $93,734 (-52.76%)

Obviously it would have been nice to have applied the $7,500 we spent on the European vacation toward the payoff of house #2, but this is when you have to balance the quality of life and the value of the experiences that mold us and our attitudes toward the world around us with frugality and debt paydown.  

NOTEWORTHY POINTS:

The interest portion of the mortgage payment for house #2 was a whopping $74.44.  Just nine months ago in January of this year the interest portion of each payment was $203.12.  That's the beauty of the debt-payoff-snowball in action.  Compounding in reverse.  It is the wind at your back, adding its efforts to your additional principle to create an even faster payoff.  

As it stands now, I am hoping to have House #2 paid off by next February.  We have other plans in the works that may help us get the last house paid off by Summer of next year.  I can't share those details with you yet, so stay tuned!

 

Update - August 2014

Another month bites the dust!

We are ahead of schedule.  The red line is a straightline progress showing approximately $3,400 per month added to the principle with the payoff goal of $177,650 in 42 months.  The blue line shows where we actually are...ahead of schedule by many thousands of dollars, $12,604 of them to be exact. 

We have essentially sunk every extra dollar available into this accelerated plan.  Bonus distributions, rental proceeds, saved income, all dollars given a purpose and sent out to accomplish their noble mission.

As a result of this laser-like focus and keen determination, the balances are shrinking quite nicely.  During the past three months we were able to accelerate the mortgage payoff by adding a total of $32,000 to our regular payments.  That's nearly $11,000 per month!  It was only January of last year that we owed $177,650.  Here we are just 20 months down the road with only $85,000 left to go.

Jan 1, 2013 (Beginning Bal)                           July, 2014                       Amount Paid Off

=======================================================================

House #1 - $70,908                                         House #1 - $64,829                     $  6,079
House #2 - $57,619                                         House #2 - $19,852                     $37,767
House #3 - $49,123                                         House #3 - $ 0                             $49,123
-----------------------------                                    -----------------------------               -----------------------------

Total:       $177,650                                                            $84,681                   $92,969 (-52.33%)

What helps us to stay the course?  Keeping the goal and its benefits clearly in mind.  For example, we keep anticipating how when house #2 is paid off, the real payoff comes.  How so?  The lack of that mortgage will mean an additional $498.01 in cash-flow each and every month.  What a sweet relief to know that the only mortgage we have left will be the last and final house #3 whose PITI payment is $710.38 per month.  Piece of cake!  

But something else that makes for sweet meditation is to think about how that additional $500 per month reward for our financial discipline is the equivalent of a dividend growth portfolio totaling $120,000 paying a 5% dividend.  Or, a portfolio totaling $150,000 paying a 4% dividend if you're slightly more conservative.  Moreover, that reward will have only cost us a few thousand dollars because we bought the house right to begin with and subsequently let the tenants pay for a chunk of the house.  Ultimately, we have only paid a few thousand dollars for an income-generating machine worth so much more. That's rental real estate done right.  

Obviously, we can't maintain that pace indefinitely.  In fact, for the next two months we'll probably pay the minimum as we are travelling to England and Ireland and want to cash flow the trip. No debt here!  We've already cash flowed the airline tickets, but we still have hotel and misc fees to pay.  So, come November the pace will return to a more normal speed with an anticipated payoff of house #2 by February or March at the latest which would actually put the payoff of house #2 right on schedule.

While achieving your goals, it's easy to give out.  Paying off debt or building a dividend producing portfolio can take years.  That's not a sprint, it's a marathon.  But while running that marathon, take time to picture yourself enjoying the rewards of your hard work and self-discipline.  Picture yourself crossing the finish line.  Feel the accomplishment.  See yourself with your minds-eye enjoying the additional cash-flow or or lack of stress-related debt.  See it.  Touch it.  Enjoy it.  Resist the temptation to dwell on how far you still have to go.  Look back on how far you've come, your achievements!  If you can maintain that powerfully motivating imagery and mental discipline, I can just about guarantee that you'll eventually achieve your worthwhile goals.

ALL debt is RISKY debt

It's time to dispel a myth once and for all. There is no such thing as "Good debt".  This will no doubt be a controversial post, but it has to be said... ALL debt is RISKY and therefore potentially bad!  There, I said it. I don't feel guilty saying it and I won't repent. It's all risky, risky, risky!

Whew! This coming from a guy who's successfully leveraged debt to buy multiple properties and build a rental real estate portfolio that will care for us well into our old age. Seems awfully hypocritical, doesn't it?  Perhaps. However, I like to think that this conclusion regarding debt is part of the evolution of personal finance education acquired through the years.

Oh, no! He's drunk the Dave Ramsey Kool-Aid. Well, as much as I agree with Dave Ramsey's position on several points, I'm my own man and do my own thinking. Like most, I take a little from here and a little from there and mix it together with my own values to arrive at a philosophy I can call my own. Now, on with five reasons that all debt is risky:

1) Debt = Risk

Unless you maintain the cash to be able to pay off the debts you acquire in an easily accessible bank account, you run the ever-constant risk of a health or economic crises that may cost you your job. Such unforeseeables can put your financial and emotional well-being at risk. Carrying debt is like playing Russian Roulette. There's a real chance (1 in 6 or 17%) that you could loose and be set back financially for many years--if you recover at all.  It is impossible to successfully argue otherwise. The odds are mathematically irrefutable.  Every day, month, year you carry more debt than you have cash to pay off, you're just spinning that revolver debt-cylinder and pulling the trigger hoping it's not the one containing the bullet!  I don't know about you, but I'm no fan of living under a cloud of risk every day of my life.

2) Debt is expensive

Let's assume that your one of the few who keep enough money stashed away in a safe place and can pay all your debts off in one fell swoop.  As a debtor you must still pay for the privilege of borrowing someone else's money.  That privilege can get very expensive.  I won't even bother with the most expensive interest like revolving charge accounts or credit cards.   Let's just take a common FHA mortgage to illustrate the point. 

For example: If you think you're only paying 4.5% for the $200,000 loan (after 20% down) you've mortgaged, think again.  Over the course of your thirty-year amortized mortgage, you are paying $364,809.54. The interest amounts to $164,809.54. That's expensive! But it get's worse...

If you put less than 20% down for an FHA loan (many typically put the minimum 3.5% down), you will pay for Mortgage Payment Insurance (MIP) amounting to an additional 1.75% up front but usually rolled into the mortgage and an additional MIP of 1.35% FOR THE LIFE OF THE LOAN. That loan is getting expensive.

How much rent are you paying each month to borrow someone else's money?  Wouldn't it be better to keep that money-rental-fee for yourself, stockpiled and stashed away for an inevitable opportunity?

3) Oh, but mortgage debt and school loans are "Good Debt", right?

Good Debt vs. Bad Debt is a misnomer.  It should more appropriately be termed "tolerable vs. intolerable debt".  Yes, your low-interest mortgage and student loan debt may include certain tangible benefits. But that doesn't make it "good debt". What's good about debt? Try telling a person diagnosed with Thyroid Cancer, "Oh, well, if you have to have cancer, that's one of the better ones to have". Oh, sure, they may nod in agreement and smile, but they're secretly wanting to slap you in your ignorant face.  There's nothing inherently good about any form of cancer. Let's call it like it is, a frightening, potentially life-threatening disease.  There's NOTHING GOOD about it! 

I'm not telling you that you should NEVER, under ANY circumstances get a mortgage, nor am I saying you should NEVER borrow money to get an education.  If you feel you must do either, then at least consider the less expensive options: (Like buying a house well below your means and getting an education that doesn't require an expensive out-of-state university with twenty years of student loan payments.

It's simply more tolerable than, say, high interest revolving credit card debt.  But not matter how "good" it appears, the entity who loaned you the money has a lien on your possession--which often serves as collateral--amounting to a lien on your life.  He owns a portion of you and you cannot easily extract yourself from his grasp without pain.   Nothing "good" about that.

You may escape the fate of those who've fallen due to unforeseen circumstances in their lives, but in the end you still played a dangerous game of Financial Russian Roulette.  You just never know in which chamber that fateful bullet lies.

4) Debt limits freedom

It's like a ball and chain attached to the ankle of a sprinter.  Your mobility in life is severely limited. Want to move yourself or the family to another area?  Change jobs? You MUST be able to find the right job which will pay the right amount of money to cover not just life's basic necessities, but also enough to service the debt load you've accumulated.  The greater that load, the heavier the ball, the stronger the chain and the more limited your life choices become.

5) Debt creates anxiety

Why worry about whether there's a slow-down at work or in the economy at large?  Why worry about who the next boss is going to be and whether he'll like you or not?  Or whether she's an absolute lunatic bent on making your life a perpetual panic-attack?  A lack of debt gives you the freedom to tell people you're just not going to put up with the crap! 

Let me illustrate: Just a few days ago we got a belligerent call from a client whom we've faithfully and conscientiously serviced for three years. In fact, the location went up for bid a few months ago and we were awarded a new three-year contract with a nice increase.  A new manager came in (the third in three years).  He was rude, unreasonable and threatened to cancel our contract if we didn't accommodate his every unreasonable demand. This is the kind of phone call that keeps many a business owner awake at night worrying.  Not us.

What did we do?  Since our company is debt-free, and our household is consumer debt free (House paid off, cars paid off, most rental real estate is paid off), I called him back and simply told him we were done with them and to get another company to service his facility. He was flabbergasted! Twice during that conversation he said in all his years he's never had a vendor quit him.  I doubt he's had many debt-free vendors during that time who simply didn't have to put up with his crap.  Obviously he's been accustomed to having vendors and employees kowtow to him and have no choice but to put up with what ever crap he decided to dish out.  Not us! I've fired several unreasonable, belligerent clients over the years.  Even though it was a lucrative contract, we just didn't have to put up with him. We fired our client and moved on.  Easy! Not for a minute did we stress over how we're going to make up for that lost client's income. Being debt-free gave us options...stress-free options.  How liberating is that?  Debt-free essentially equates to anxiety-free.

On the other hand, don't misunderstand me.  I'm not telling the whole world not to use debt responsibly.  It can be a powerful leveraging tool toward greater financial success. However, let's not call something so potentially destructive, good.  A knife can be useful and practical, but it's not without risks.  You could easily drop it and pin your foot to the ground with it, or cut your finger while chopping vegetables. Those risks are not good, they are at best, tolerable. Likewise, all debt carries risks, much of the time it is expensive, often limits personal freedom and tends to create anxiety.  Instead of trying to distinguish between good debt vs. bad debt, we should recognize it for what it is: Tolerable debt vs. intolerable debt.   At least we should fully understand and appreciate the risks of any debt, right?