Eliminate Your Mortgage……We are Mortgage Payment Free!!!
This statement certainly is eye catching, who doesn’t want to eliminate their mortgage payment. If you have been following my blog you know that I believe real estate is the investment of choice for creating wealth and is my dog sled full of Siberian Husky’s as I ride towards my own Financial Independence Gold Rush. In the post today I’m going to reveal some of the numbers** on how I eliminated my mortgage payment.
If you read about personal finance you will inevitably hear “The Big Three” in terms of expenses. Dividend Mantra does a fine job explaining one of the keys to financial independence in his article. Let me provide you with a quote that sums up the Big Three:
“If you really want to retire at a young age or achieve financial independence while you’re young enough to enjoy it you need to focus your attention on “The Big Three”: Housing, Transportation and Food. Once you have these three under control the rest of your expenses will take care of themselves.”
No matter what early retirement blog you read this will ring true. While Dividend Mantra and I have different focuses on our investments we know that the above statement rings true in our journey and if we don’t focus on controlling the Big 3 as our priority, the amount of dividends and real estate income needed to retire early just keeps going higher and higher. Housing is of course considered the elephant in the room in terms of expenses, even those who do a great job of keeping a low housing expense, still have 25% of their income distributed to their mortgage. It’s kind of crazy to think that you start off your financial journey with 75% of your income available. I’m not counting credit cards, student loans, medical debt(The Other Big 3) that drag your income down even further. So what have I done to become Mortgage Payment Free?!?! We purchased and live in a Multi-Unit property. For those not familiar with the term, let me give you a definition.
A building or structure that is designed to house several different families in separate housing units. The most common type of multifamily housing is an apartment building.
The idea for us was to buy a multi-unit property while obtaining a conventional residential mortgage(Properties with 4 units or less) just like you probably have with your single family home. We bought a 3-flat building about 2 years ago, the property was a foreclosure during a down but quickly rising time. Mrs. Even Steven and I had been on the look out for every property you can imagine and every area of Chicago as well. Buy me a beer and I can tell you some stories and as they say it’s probably worth the price of admission.
We bought this property and had some work done to all of the units over the first year we owned the property. We went through some saw dust on the floor and learning a few things about what we were really made of as we owned our first house together. If you want to find out more I have discussed some of the details behind our DIY Landlord and Property management experiences, make sure to give them a read.
The reason we are mortgage free is this, the rents we receive are equal to or greater than the mortgage. Take a look at the simple example below**. This is why we do not have a mortgage payment, we are able to eliminate one of the Big 3 and get to financial independence sooner. We can take that mortgage payment and double down on our mortgage payment, pay off our Florida investment property,build up our “Get out of Dodge” savings. By eliminating your mortgage payment you can race on the Autobahn towards financial independence instead of being caught in the school zone going 15 mph. Since I live in Chicago a better analogy is taking the train to work while others are stuck in traffic, we decided quite early we didn’t want to wait for the traffic jam to get moving.
|1st Unit||2nd Unit||Mortgage||What We Pay|
If you want some more examples check out this article by FI Fighter that talks about what he should have done to speed up the early retirement process. If you are looking to be mortgage payment free or at least get the Big 3 to be more like the Big 2.5, you can do things like get a roommate, rent out your basement, or even take the plunge and sell your place to buy that duplex, triplex, or four-plex. I’m not a financial advisor, but someone paying your mortgage sounds like a good idea to me. Do your research, who knows maybe the next time we talk you will be Mortgage Payment Free.
**The numbers are similar, if I used all of the real numbers, my wife would tell me to stop writing and I would sleep on the couch for a couple weeks, we don’t want that do we?