When Greg and I first got married, we set a goal to build long-term wealth using passive income streams. One key part of that strategy involved purchasing rental properties, and after buying our first one in 2007, we were eager to see how this investment would grow.
Over the years, we bought a second rental property, and our desire for passive income grew even stronger. Fast forward nine years, and we’ve just paid off one of those properties—a three-bedroom house in Greenfield, Indiana. For the first time in our lives, we own a home outright, and we’re both in our late 30s, so this property should continue to generate passive income for years to come.
Why We Bought Rental Property
When we started investing in real estate, we didn’t know everything about the industry, but we quickly realized that with some initial capital, time, and patience, we could use rental income to cover the majority of our property expenses. This was an immediate win for us, as renters effectively paid off our properties over time.
We also wanted to diversify our investments beyond stocks and bonds. Real estate allowed us to invest in something tangible—something we could see and touch. Plus, we enjoy the challenge of managing rental properties, so it was a natural fit.
From the beginning, we’ve been focused on living debt-free, which is why we chose to pay off this property. Though many landlords use debt as a way to leverage their investments, we’ve always preferred to eliminate our liabilities as soon as possible. The property we paid off had an APR of 4.97%, making it worthwhile to clear the debt. Given that our savings were earning a minimal return, paying off the mortgage was a better option.
To sum up, we bought rental properties because:
- With a small initial investment and some effort, we could build long-term wealth.
- Renters would help pay down the mortgages.
- We love the idea of passive income.
- We wanted to diversify our investment portfolio.
As for paying off the property, the reasons were simple:
- We dislike debt and prefer to live debt-free.
- We’re already contributing to our retirement accounts, investing $4,500 monthly.
- We’re ready to enjoy the benefits of truly passive income.
What’s Next for Us Now That We Own a Property Free and Clear?
Our ultimate goal with rental properties has been to create a reliable stream of passive income. We’ve already diversified our investments to protect ourselves and build security. Part of that security means paying off all our debts, so we can live completely debt-free in the future. Now that we’ve made progress, we’ve set some exciting new plans:
Snowballing Payments to Pay Off Our Second Property
Now that we’ve paid off our first rental property, we’re focusing on clearing the mortgage on our second property. Currently, we owe around $70,000 on a three-bedroom house with an APR of 4.75%. Our plan is to use the rental income from the first house to accelerate the payments on this second property. By making an extra $1,300 on top of the minimum mortgage payment, we expect to pay it off in less than four years. With lump sum payments, we hope to clear the mortgage even sooner, aiming for December 2018 as our target.
Saving for a Third Property Purchase
Since moving to Noblesville, we’ve been eyeing a third rental property, but the local real estate market is quite competitive. Property prices are higher, and homes sell fast. Instead of rushing in, we’re saving up cash to wait for the market to cool down. Our plan is to buy a single-family home within a few miles of where we live. As a growing suburb of a large city, we believe the area is still undervalued, and we’re excited about the potential return on investment.
Paying Off Our Primary Residence
While we’ve been aggressively paying down our rental properties, our primary home’s mortgage is at a much lower interest rate—3.25%—and doesn’t generate passive income. We plan to pay it off by the time we turn 40, leaving us with only a few years to make that happen. If a great rental opportunity arises, we may choose to pay it off sooner, but that could also push back the timeline for our primary residence.
The Future: More Passive Income
Once we have our second rental property paid off, we’ll be earning about $2,000 a month in passive income. But we’re not stopping there. Our next goal is to find a third rental property that can boost our monthly income to $3,000–$3,500. If we hit that target, we’ll have enough income to cover most of our expenses. With our debts cleared, we’ll be able to focus on paying for utilities, food, insurance, and other essentials.
Ultimately, our goal has always been to create a lifestyle where work is optional, and we’re getting closer to that every day. Paying off our first rental property is a huge step in that direction, and we’re excited about what’s next.
Final Thoughts
As we continue our journey toward financial freedom, we’re committed to maintaining a debt-free lifestyle and growing our passive income. The ability to invest in rental properties and generate consistent cash flow is an empowering experience. We’re excited to see how the next few years unfold and continue working toward our goal of financial independence.
Do you have plans to pay down your mortgage? If so, what’s driving that decision?
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