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

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

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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.

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* Made $70,000 from rentals in 2014

* Flip 10 to 15 houses per year

* Plan to retire early with real estate

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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.  

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31 Comments on "My First Rental Property is Paid Off Three Years After I Bought It!"


Guest
Ja'Co Johnson
1 month 18 days ago

Hello,
I was wondering do you invest in apartments at all? I couldn’t find any info about them from you. If you don’t may I ask why not?

Guest
jay Tee
2 months 2 days ago

Hello,

How did you determine which house to pay off first? I have a primary resident which owes the most. An investment that has a .1 % higher rate and a Heloc that is 2 yr fixed at the lowest rate. Pay down the primary since I can’t claim the interest and its highest amount? Pay down highest interest rate? Pay down lowest term?

Guest
Oscar
3 months 20 days ago

Hi Mark,

Did you buy these homes under a LLC, and did you use a management company to manage rent/ upkeep?

Oscar

Guest
Lev
6 months 9 days ago

Hey Mark! Just came across your article and it is inspiring! I am 21 years old and looking forward to investing in my first rental property shortly with the goal of adding many more properties afterwards. What would your advice be for someone in my position starting off in real estate investing?

A little background on myself: I have a full time job and have a little more than $15,000 saved and looking to save much more within the following months. I have already spoke with an overseas mortgage advisor because I will be investing where my father lives (not where I reside obviously, hence overseas) and have almost all the requirements (4 Accounts showing 12 months worth of payments, a good credit score (737-741 since January 2015), and proof of employment as well as a few other things. Right now, it’s just a matter of saving a little more capital.

Guest
8 months 21 days ago

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