253. Pay the doors off

Why are we chasing financial freedom? To us, the whole point of achieving financial freedom is to have peace of mind, and a way to ensure peace of mind is to have a few properties paid off. 

If the properties are paid off, yeah we may not be getting the best return, but paid off properties make us bullet proof when something goes wrong. 

Yeah we could use the paid off properties to leverage, take out more loans, acquire more doors, but eventually a jam will occur, what do we do then?

Our solution: have the properties paid off. 

And the key for this whole thing to work? Discipline. Discipline to not touch cash flow each month, discipline to fully optimize each property, discipline to stick the course. To me, this cash flow is non-existent because the cash flow is feeding the golden goose to produce more golden eggs. 

There’s two strategies we’ll be using to pay these 5 properties off: 

  • Two mortgage payments a month 
  • C3X

Allow me to explain why.

The two mortgage payments a month is a little sneaky trick that we’ll be pulling. It may look like two payments a month, but it’s really 2 payments every 28 days. That gives us an extra two weeks of principal payment per calendar year. This is huge because when we take out a loan for property, the loan is an amortization loan. For example, let’s use easy numbers: our mortgage payment is 1,000$ a month. When we make our first mortgage payment – 1$ goes to the principal and 999$ goes to interest. The next payment 2$ goes to principal and 998$ goes to interest, so on and so forth. 

The catch? Any additional payment over the mortgage payment goes directly to paying down the mortgage vs going to the bank interest. The smaller our loan balance, the less interest we pay on our loan, leaving more money for us. By paying two extra weeks of principal payment per year, it decreases the cost of the loan over the course of its life. 

C3X: Ever hear of the debt snowball effect? The debt snowball method is a debt-reduction strategy where you pay off debt in order of smallest to largest (or highest interest to least interest) gaining momentum as you knock out each remaining balance. When the smallest debt is paid in full, you roll the minimum payment you were making on that debt into the next-smallest debt payment, along with all the additional payment towards that one credit card. We actually used this method to get out of about 15,000$ in credit card debt. 

How is the debt snowball method similar to C3X? Because all the extra cash flow from every property is put towards one property’s loan balance. Once that loan balance is paid off, all the cash flow will go to the next. 

For example: say each property cash flows a profit of 100$ per property per month. With our 5 properties, That’s 500$ a month in cash flow that we’re making. Instead of keeping that cash, instead of paying down each mortgage faster, we’re going to take all that extra cash flow and put it towards the property with the lowest loan amount, each and every month. Once that property is paid off, we’ll take all that extra cash flow and put it towards the new lowest amount. We will repeat this process until all the properties are paid off. The best part? With each new property paid off, we’re boosting our cash flow an additional 900$ per month, which is monster gains. 

The not so best part? This pay off phase will take some time to complete. In the meantime, we’re growing our business, maxing out retirement accounts, and saving up cash to be used for more down payments so we can move onto phase 3. 

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