We now have 4 investment properties, 2 single family homes and 2 duplexes. On these properties we have 6 loans- 4 conventional, 30 year mortgages and two HELOCS that we used as down payments for purchasing them. Now all we have to do is pay them off. Easy Peasy.
Here is a chart to show our balances immediately after last month’s final purchase.
And here is one to show where we are after some big payments today! Our goal is to use the standard “Snowball Method” to change all the red to blue in the next 10 years.
Mr. Bona Fide Money just received his annual employee stock benefit and we sold our Prius. This allowed us to contribute over $14,000 towards the HELOCS. We won’t be able to make big payments like this every month but taking one entire loan off the chart feels pretty great.
All income from rental properties goes directly back at the loans. As each one gets paid off, the increased cash flow quickly compounds the progress. I haven’t actually calculated our savings rate but the general budget is to live off of Mr.BFM’s consistent income (“after pre tax retirement contributions”) and to use mine (“”), which is strong but very variable, for travel and loan pay down.
I know there is a lot of back and forth about whether or not it is better to pay off mortgages or to buy index funds. We do both. We have the HSA, IRAs, Roths, 401ks… We have done a TON of reading on it and concluded that we are diversified enough to focus the extra on these mortgages. They are each a notch below or above 5% interest rates. But for us, the real motivation to pay them off is the low balances. Because HELOC 1 is amortized at a fixed 5 year term, the minimum payment is $937.00 a month. That’s a pretty big change in cash flow after only putting in $51,000. If we could find another type of investment that would pay us $937/month after depositing $51,000, we would totally do that instead. Yes, we understand the tax implications as well but find that there’s always plenty to write off with rentals. Ultimately, it’s so easy for those of us prone to optimizing everything to feel “analysis paralysis” and not actually make any satisfying progress anywhere. This is a really actionable plan that is fun to put in a chart. And I think we can all agree that fun charts are the real reason we all do any of this. Am I right?
We are not, however, pre paying on our home mortgage. That balance is quite a bit bigger than the rentals and at 3.2% interest… it just doesn’t compute. We do have a ton of equity in it and will most likely sell and downsize when the kids move out. We’re in no rush to get rid of them, though. They can stay while they’re in college if they want. They’re cool people and it’s nice to have them around. We don’t really know what we’ll do after the kids are gone but it’ll probably be whatever the hell we want. And that’ll be nice too.