I 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.