My First Rental Property is Paid Off Three Years After I Bought It!

rental property #1It took me just over three years to pay off the first rental property I purchased!  I bought the property in December of 2010 and thanks to using the snowball method to pay off mortgage, I made my last payment this week (Feb 2014)!  My plan to purchase 100 properties is progressing nicely and paying off this home fits in perfectly with my payoff schedule.

It was a great feeling paying off my first rental property

I was really looking forward to writing out a check for the full amount owed and mailing it to the bank.  However, when I called my mortgage company to get the payoff, they told me I had to use a bank wire or a certified check to pay off the loan.  I chose the bank wire since it would be easier and faster for me, but it wasn’t as satisfying as writing a check.  Two years ago it seemed ridiculous that I would be able to pay off the property so soon, but I did it.  Setting goals and making plan was a huge part of paying off this home so quickly.

The details on my first rental property

My first rental has been a great investment and the details are here.  I bought the single family home for $96,000 and put 25% down when I bought it.  The home was rented for $1,050 when I bought it and then $1,100 a month one year later; it is now rented for $1,300 a month.  I have had four renters and no vacancies since I first rented the home.  I have been able to rent it before the tenants moved, because the tenants kept the home in great shape and let us show the home.

My payment was about $500 a month including taxes and insurance, which left $500 a month in cash flow.  I have not had many repairs to do, unless you count a new roof and new siding which was covered by my insurance.  We had a huge storm come through with massive hail that destroyed the roof on this house and as well as most of the siding.  I have had to replace the water heater and do a few other minor maintenance items as well.

How was I able to pay off my first rental so quickly?

There is no way I could pay off this property so quickly if I only used $500 a month as extra principle reduction.  I used the cash flow to pay off the loan on this house and I also used cash flow from my other rental properties to pay off this loan.  I was able to take the cash flow from 8 rental properties to pay off this property.  I was hoping to pay off the home before the end of 2013, but it took a little longer because some of my tenants got behind on their rent and my insurance company was slow paying me all of my claims money.  In January, the two tenants who were behind paid me large chunks of money once I posted eviction notices.  Funny how that works!  I also received one of the insurance checks I was expecting so I was able to easily pay the pay off amount this month.

What are the benefits of paying off one loan quickly versus all your loans at the same time?

There are many benefits to paying off one loan very quickly over paying down all my loans at the same time.

  • More cash flow when I pay off a loan: I have almost four hundred dollars a month more in cash flow, because I don’t have to make payments on the loan anymore!
  • My debt to income ratio went way down by paying off the loan: Whether I owe $5,000 or $150,000 on a loan, the payment still shows up on my credit as debt.  The more payments and debt you have the harder it is to qualify for a mortgage.  Once the loan is paid off, that payment disappears and my credit and my financial position looks much better to lenders.
  • I have one less mortgage in my name: Most banks will not finance investors with more than four mortgages in their name.  The less mortgages I have the better, because I can buy more rental properties.  Even though I have a portfolio lender who will loan on as many properties as I want right now; I don’t know if they will do that forever.
  • With this house paid off I can get a line of credit easier: Even though I paid off this home, I can still leverage it by getting a line of credit.  The great thing about a line of credit is I don’t have to take out all the money at once like I do with a refinance.  I can let the line sit their unused until I need more money for down payments or to buy a fix and flip.
  • With a mortgage paid off I can pay off another house faster: I can use my cash flow to pay off another rental property.  I will use the same cash flow I used to pay off rental property number 1 to pay off another rental property!  I think I will pay off rental property number 4 next because it is actually the next ARM that will adjust the soonest since I refinanced rental property number 2 and rental property number 3.

The next part of my plan to pay off my rental properties

As I mentioned I will apply my cash flow to rental property number four, which has about $87,000 left on the mortgage.  I should be able to come very close to paying that property off in 2014 or early 2015 thanks to buying more properties in 2015 and increasing my cash flow with each purchase.  I want to buy six more rentals in 2104 and that increased cash flow should help out tremendously.  For more information on my investing please check out my complete guide to investing in long-term rental properties.

Update: I have not been paying off rental property number four with the extra cash flow.  I have saved that cash flow to help finance my fix and flip business which has taken off in 2014.  

Related Articles

Rental Property number 9 is under contract

My second rental property

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I have been a licensed Realtor since 2001, I own 11 rental properties and fix and flip 10-15 homes a year. I love writing, real estate, cars and my family!

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20 comments on “My First Rental Property is Paid Off Three Years After I Bought It!
  1. Neil says:

    I like the snowball approach to paying down mortgages, but does it slow down your acquisition rate if you were planning on using the income to get new places?

    How are you balancing paying off the mortgages and using the money for new acquisitions? Right now we are wrapping up our Fannie Mae slots and ready to look at other ways of getting leverage.

    • Hi Neil, Right now I have a harder time finding great deals than I do paying for them. Thanks to my real estate business I have enough capital to purchase new properties, but if I did not I probably would not pay them down so aggressively.

  2. Michelle says:

    Awesome, congratulations Mark!!

  3. Anna says:

    Mark, who is the lender you are referring to? Thanks!

  4. Gerald K. says:

    Congratulations Mark. It’s nice to see your plan coming together!

  5. Congrats, that’s an exciting step! I just closed on my second rental property today, and I’m exploring the idea of continuing to expand.

  6. Ravi says:

    I’ve got one property and it’s paid off now. Net cash flows (after a maintenance reserve I set aside monthly) is around $550.

    I’d love to get another property, but have not been able to find many good deals lately. Market prices are close to fully valued. I wish I would have leveraged more in 2010-2012.

  7. Mark, I also accelerate payments to pay our properties off quickly as well. At this point we have several paid off properties are only using LOC against those properties for new acquisitions. We are not planning to purchase 100 properties, so we dont even bother converting to conventional mortgages.. Just pay off the lines then buy another one. Much slower growth rate, but we just need a handful more to call it an early semi-retirement.

    Good blog..enjoying the content…

  8. Jeannie says:

    Hi Mark, great articles! I purchased my first rental home with my parent’s help in 2012 and have never looked back. The extra income on top of my normal income is such a big help each month. I’m currently helping my brother invest in a rental home as well.

    My question today is: would you mind expanding more about the “snowballing” method you used to pay off your first rental house? I’m not sure how that process would work in combination with making other big payments. I’m currently using my extra income from my rental home as well as income from my day job to pay off my undergraduate loans and my graduate school tuition. However, I would love to have more purchasing power and be able to extend my equity line even further. I’m just worried that at this stage in my life (being bogged down my school loans, having one mortgage already and taking on another hefty one) is going to set me back several years in being able to purchase any rental homes in the near future.

    Any advice/input would be greatly appreciated.

  9. BS alert says:

    who are the DOPES who are renting at double the cost of a mortgage for the same property?

    • Hi, That is market rent in our area. It is like that in many areas. Many people rent for many reasons. Some want to move out of the area soon, have bad credit or don’t want the expense of owning a home.

  10. Pat Sanchez says:

    Great article. You are very educated and a go giver with your knowledge. Really enjoy your content. Very engaging website.

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