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 - 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?  

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!