Staggering Loans to Financial Freedom

When I talk to other investors about reaching financial freedom one topic that always comes up is to pay off mortgages early or to reinvest the cash flow. While I don’t think there’s a wrong answer I do think there’s another way. Staggering your loans to financial freedom.

Let’s be honest, most of us have the idea to pay off mortgages early, an extra $100 or so a month towards the mortgage have it paid off in 15 years instead of 30. Then you close that first deal and the rush comes back and you’re ready to look for that next deal. Then you look at your capital to invest and that extra $100 or so could help a little bit more. Next thing you know you have two 30-year loans.

There’s nothing wrong with that, you have two investment properties, and they’re probably cash flowing well. You start looking at the cash flow and financial freedom isn’t just water cooler talk anymore. It becomes a real possibility.

One concern pops up in your mind though, you must wait 30 years for these properties to be paid off. The same vehicle that helped you reach financial freedom hangs over your head throughout your early retirement.

This is why I’ve started staggering my loans. I have a combination of 30, 20, 15, and 10-year loans. The 30-year loans obviously cash flow more, but the 10-year loans will be paid off sooner and get better interest rates. I don’t concern myself with how each property is cash flowing individually if I’m satisfied with the overall cash flow each month. I want to make sure that I’m able to handle any vacancies or repairs that are bound to happen as well as save capital for that next investment.

Below I’ve listed some hypothetical numbers from a $100,000 house renting for $1,000 a month, the 1% rule, and what you can expect in cash flow depending on your loan terms. I’ve also listed what your cash flow would be each month if you were to buy five of these properties. Two with a 30-year fixed, one 20, 15, and 10-year fixed loan.

Here’s what you would cash flow each year from those five properties;

Those numbers might not excite you but who’s really going to stop after five? Even if you do maybe you get better than the 1% rule. You may get a couple that hit the 2% rule and you are cash flowing more.

If you go this route you still need to get the monthly cash flow you require. If you’re living off your rental income or a little of it maybe wait till you get a couple more rentals and one of those two you get a 10-year loan. Or you make both 15-year loans, now you have more income than you previously did, but they’ll be paid off sooner than the rest.

I like staggering my loans like this because of the jump in cash flow after 10 years. So, when I do finally walk away from my day job and pursue Real Estate as a full-time agent and investor I don’t have to wait too long before some of my loans are paid off. You can also look at it as a nice little raise!

Not everyone can afford to reduce their monthly cash flow by getting 10-year loans I understand that, but you’ll eventually be in a position where you can get one or two. It can help you reach financial freedom that much quicker.

I still don’t believe there’s a wrong way, I just wanted to make the case for a third way.