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Rental house is paid off!

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  • Rental house is paid off!

    As others have stated, most of us don't have much of an outlet to celebrate financial victories, so this post is mostly just cheering. I know this won't be an entirely popular choice, but this week we made the decision to pay off our rental house! I sold about $55k of highly profitable investments (22% gain over the last 2 years), and sent the wire this week to pay off the house. I fully recognize that this was not the most purely logical choice... But the desire to pay it off has been nagging at me for the last 6-12 months, and I decided that we would take advantage of the high-flying stock market to go ahead and pull the trigger. We started dramatically accelerating our principle payments back in May (making $7k/mo payments, when it had a $90k balance), then this month, the balance was finally low enough that we could pay it off with our taxable investments while not completely draining them. (Side note, we happened to sell on the day before the stock market dropped this week! Lucky timing!)

    The house is worth ~$190k, purchased 6 years ago originally as my personal home in OKC for $177k. Since then I've gotten married, had 2 kids, and we moved up to Alaska 2 years ago, at which point we started renting it out. It's currently rented for $1495/mo total, so with it now paid off, I'll be drawing off ~$1k/mo in extra income (after setting aside cash for management/maintenance/taxes/insurance expenses). It's not earning me a killing (~7% ROI), but for the moment, we're happy with it. We're also exploring the option of selling it next summer to my brother & his wife for their personal home -- they currently live around the corner from our rental house, and they've expressed some interest in potentially buying it. But if they don't, we'll likely just continue to hang on to it for now (again, I know that many would probably argue to sell it regardless, given the relatively low 7% ROI).

    So why are we making these decisions with our rental house that seemingly go against all normal advice (selling investments to pay off a 2.75% mortgage, and accepting a relatively low 7% ROI)? The short answer is flexibility. We're still staring down the likelihood of my wife getting medically retired from the military, and I'm still trying to decide on what I'm going to do with my own career. I'll either be reassigned next October if I stay on active duty, or I'll leave active duty and switch to the national guard. So the largest impetus for us is to reduce our expenses, and to simultaneously provide an extra steady income stream to help us mitigate some of the uncertainty that we'll be facing within the next year. And although this is not, by pure numbers, the best possible option, we feel alot more comfortable with our situation. We've reduced our level of risk significantly, which evens out the numbers in my mind. Now that we're no longer focused on this rental house, we can direct what feels like a massive firehose (50% of our strong income) toward bulking up cash & investment assets for whatever comes next in our lives with way less stress/uncertainty/concern.

    So we're quietly celebrating a little bit, because we're thrilled to now have no debts except for our current home, and a net worth around $800k at age 32/33 (albeit mostly in retirement investments & real estate).
    "Praestantia per minutus" ... "Acta non verba"

  • #2
    Kork - not a bad move man. Congratulations!!! You now have a fully debt free cash machine. Great job and keep it up!
    james.c.hendrickson@gmail.com
    202.468.6043

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    • #3
      I personally would do the same thing. There's so much more to these things than just math and long-term statistics. You could lose that money for a long time with shorter term market gyrations. Uncertain income is something I am too familiar with and is easier to deal with when you make plans (lower expenses/pay off debts) so that you can continue to invest and grow wealth even during periods of low income or loss of income. Congrats!

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      • #4
        Congratulations! I completely understand your choice. And whew...lucky timing on the sale!
        My other blog is Your Organized Friend.

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        • #5
          Congrats! No argument from me. I'm very much the same way with this: "the desire to pay it off has been nagging at me". Anytime a loan we've had has gotten to a point where I could easily come up with the cash to just pay it off, I have, even if it didn't make financial sense strictly speaking. We currently owe about 20K on our mortgage. I'm paying an extra $1,000/month which will have it paid off in one year, but I know I won't wait that long. Once it's down to maybe 5K, I'll just make one big payment and be done with it, so probably more like June or July rather than October, and maybe even sooner depending on how things are going. I don't think anyone ever really regrets getting rid of debt.
          Steve

          * Despite the high cost of living, it remains very popular.
          * Why should I pay for my daughter's education when she already knows everything?
          * There are no shortcuts to anywhere worth going.

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          • #6
            Well done, congratulations. You've peace of mind and opened the door for whatever opportunities present themselves for you and family.

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            • #7
              Congrats! I'd sell it and be done. It's hard to manage money with two small children. Sometimes it's about the ease of life, not the most financially efficient thing.
              LivingAlmostLarge Blog

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              • #8
                Piece of mind is priceless, and you can't go wrong with buying low and selling high. Congrats.

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                • #9
                  Small world. I did the same thing, except backwards. Paid off my home with 55k of s&p taxable stock back in September ish. I have a remaining mortgage on my rental. But I have own with my brother, so for reasons, I could not force pay that one off.

                  It does feel good to have extra flexibility and nimbleness. Plus with the extra income cash forf, we can increase our savings amount.
                  ​​​​​

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                  • #10
                    Awesome! Now get a mortgage on the asset and go and by 5 more! In 10 years you’ll be a multimillionaire!
                    How can you have any pudding if you don't eat your meat?

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