My Payoff Plan on a 14 unit apartment building.

[Mike Cotter]

Hello, 

Is my "Aggressive Payoff Plan" the right strategy, or can you help steer the ship in another direction to maximize future gains. Our goal for the next 10 years, is to create as much wealth as we can,..while not dipping into our other investments, allowing us to move out of Michigan and begin our "Life of doing Whatever we Want".

As of 1/1/15 we purchased a 14 unit apartment building. The 14 small units consist of; 4 two-bedroom and 10 1-bedroom units all within a 6900 sq.ft footprint, can you say "SMALL UNITS" Surprisingly, the vacancy rate on these apartments is and has been virtually zero..,due to the secret of" little old lady tenant selection."

We purchased the apartments from a family friend on a flexible Land Contract for $510,000. We put $200,000 down leaving us $310,000 at 5% AMT over 30 yrs. No peanalty for early payment. The monthly rents and laundry bring a monthly income of $6,890.00. Monthly expences, including my lofty $3,300.00 LC payment, averages $5,300.00 a month, leaving us $1,590.00 a month cash positive. The Tenents have not had a rent increase in over 5 years and I don't plan on increasing them THIS year. Due to the size and amenities of the units, I  only see a $20-$30 per unit rent increase available, which will keep us priced just below the competition, and affordable to the social security "Little Ladies Club" 

Here is the Aggressive Part..I originally planned on having this paid off in 10 years, hence the $3,300.00 monthly mortgage payment. However, if I was to make a $10,000.00 annual principal payment( that I will be saving from the $1,590 surplus) I could have this free and clear in 7.5 years. 

Why the urgency? My Wife and I are tired of SE Michigan and want to move to a warmer climate. Additionally, in 7.5 years we will both be in our mid-50's, which is the age I would like to have the choice to "Do Whatever I Want". 

I realize that there will be Unforeseen Expences, so we have placed a $25,000.00 buffer into our account for these swings and if absolutely necessary, we can tap into our own savings for anything MAJOR, but thats why we pay insurance, right?

So, is paying off the Apartments the right strategy or do you have any helpful  thoughts or ideas that will allow us to capture more revenues,while be able to keep our 7-10 year plan and Not have to dole out any more of our own Capital. Any and all related experience or stratergies is welcomed.

Thank you,

Mike Cotter

[Brad Gordner]

Are you saying the term for the LC is 10 years with an amortization of 30 years? I ask this because if you do not need to pay extra, then why would you? I understand your 7-10 year plan but I think you can still reach that goal without grinding your ROI to the ground on this property.

Everyone is different.  I like leverage.  My dad prefers cash and hates debt. 

Why not ReFI (assuming you don't have a 30 year term with the LC and are just paying extra to pay it off) with the bank and pull out 100,000 or your 200,000 and use that 100k to purchase another apartment building? 

Then use your cashflow and day job to save up for another.    I think you would be well on your way to your goal given your position in life at the moment.

Just a thought.