My First Rental Property Will Be Paid Off Three Years After I Bought it!

2833 picI purchased my first rental property in December of 2010 after doing a lot of research and saving.  It took me a while to pull the trigger on a long term rental, but it was the best decision I ever made.  I really want to retire early and I researched a lot of different options.  I decided early on the conventional retirement model of saving all your life, guessing how long you would live and hoping you don’t run out of money was not for me.  I wanted an investment that would provide passive income so I would not have to worry about running out of money.  I would always have monthly  checks coming in without eating away at any principle.

I discovered Real Estate was by far the best choice for passive income, especially since I was already a Realtor.  Rental properties provide cash flow, tax advantages, equity pay down and may even appreciate.  I have now purchased 6 rental properties total and each one (that was not recently purchased) provided over  a 24% cash on cash return in the first year.

I did not buy my second property until October of 2011.  Then I quickly bought another in December of 2011 and again in January of 2012.  I took another long break in 2012 and did not buy my fifth rental until December of 2013, I bought another in March of 2013 and I have one more under contract set to close 4/17/2013.

I bought my first rental with a $72,000 mortgage and that mortgage is paid down to $30,000 as of April 2013.  The reason I was able to pay it down so far was because of the snowball technique.  The snowball technique pays off one property at a time with my cash flow from my other rentals.  The impressive part is two of my new rentals aren’t even rented and three of the others I have had for just over a year.  Once I get my new properties repaired and rented I will have enough cash flow coming in to pay off my first mortgage by the end of the year.

The biggest reason I am able to pay down my mortgage so quickly is because I bought my properties under market value and they have great cash flow.  The second reason is I use a snowball effect to pay off one mortgage at a time.  Once that mortgage is paid off I will bring in more cash flow because I have one less mortgage payment.  That extra cash flow is applied to the next mortgage and it is paid off even faster.  Once I have purchased enough properties I will be paying off one property a year, then two and so on.

Check out my complete guide to investing in long term rental properties to see how I finance my properties, find great deals and a detailed account of my returns.

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8 responses to “My First Rental Property Will Be Paid Off Three Years After I Bought it!

  1. Pingback: Invest Four More Rental Property #3 | Invest Four More

  2. Pingback: Invest Four More’s Complete Guide to Purchasing Long Term Rental Properties | Invest Four More

  3. Pingback: When Saving your Cash Flow Makes More Sense than Paying Down the Mortgage | Invest Four More

  4. Hi Mark, this is a great blog. I linked over here after I found your HUD blog on Biggerpockets.

    I’ve read your other article about your snowball technique and I completely understand your reasoning, but I’m wondering how you balance how quickly to pay off your mortgages vs. how much to set aside for down payments on other properties. I suspect that a big part of this equation has to do with the downpayment that your portfolio lender requires. I’m guessing that maybe you are not paying the 25% that I was required to put down for the 30yr fixed mortgage that I just used on my first investment property.

    I just closed and am working on a little rehab to get it rented, but I’m a bit discouraged about how long its going to take me to save up another down payment to buy my next rental. And I’m planning to pay only my minimum mortgage balance and save all my rental income for the next down payment. I’d welcome any advice that you might have. And again, great blog!

    • Hi Adam,
      Thank you for the compliments!
      I put 20% down with my portfolio lender and there are a few reasons I snowball, but it is not right for everyone. I have been buying about three houses a year and my issue is not the down payments right now, but finding good deals with our crazy market. I actually wrote an article on exactly your situation If you are struggling to save up enough cash to buy your first couple, I would suggest not paying down the mortgage especially if you have a 30 year fixed. All my mortgages are ARMs.

  5. There is a great tool out there called a mortgage payment calculator that can really help with balancing budgets and funds allocation. You can figure timelines, cash flow etc. Another thing that a mortgage payment calculator can help with that I didn’t see discussed was budgeting for emergency repairs in the event an A/C unit or heater or something goes out.

  6. Forgot to mention congrats on your success and great article 🙂

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