How to Pay of Properties Sooner With Amortization Schedules
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How to grow one property into 6
[00:00:01] Jacob Ash here to speak to you about how you can grow one rental investment property to six.
[00:00:10] So I became fascinated with creating passive income. I remember that we had this this couple in our neighborhood that retired extremely early. And I remember asking my dad I’m like How did they do it. He just had a regular kind of 9 to 5 job. Nothing special no huge six figure salary income anything like that. And he just said they they own about 40 rentals and it pays all their bills every every year and they can live. They basically retired because of that and can live exactly how they want. So I became obsessed with how to basically create that passive income that would allow me to make money regardless if I was working or not.
[00:00:51] So after I got my first investment I got a mortgage on it. And there is this really really cool website called BankRate.com. And I would say that I am on it very very frequently several times a week anyway. So if you go to bankrate.com and you scroll down and there’s a tab it says popular calculators and you can click on the amortization calculator they have a mortgage calculator.
[00:01:19] They have a home affordability calculator and they have the amortization calculator the mortgage calculator and the amortization calculator are very very similar. But I like to use the memorization calculator because it asks you basic information like mortgage amount mortgage in terms of years which typically if you’re buying a residential property it’s usually about 30 years fits commercial building you’re usually anywhere from 15 to twenty five years depending on who your lender is. And then I’ll tell you what the interest rate is.
[00:01:48] So it kind of allows you to auto populate or to to populate those on your own. And then it gives you what your monthly payment is. So I use this when I am and I’ve built my own Excel spreadsheet since then that is a little bit more in-depth. But this will give you a good idea of what P.I. is just your principal and interest payment. So I enter in the information there. What I really really like about about this calculator is that you can click on the tab that says add extra payments underneath that and it will give you three additional items that you can use to calculate it.
[00:02:24] So it will say there’s a there’s a box that says Add X to your monthly mortgage payment. There’s another box that says add X as an extra yearly mortgage payment occurring every and it allows you to fill in the month that you want to do. And then another box that says add x amount of dollars as a one time mortgage payment in August of 2019 for instance or August of 20 21 whatever you want to do. So it really just enables you to play around with the system. And so after I had my first investment property and I actually had cash flow coming in positive cash flow it helped me just to play around with these to figure out how what I can do to be aggressive in paying down that debt and also pay as little interest as possible underneath the monthly payment you’ll see if you go to that for instance you can hit show amortization schedule and it actually spits out the entire amortization schedule for the life of the loan.
[00:03:28] And it’ll tell you it’ll tell you how much the payment date with the total payment is how much in principal how much in interest you’re making on each payment. Month by month and then the total interest actually accumulates on the right side and then it tells you your balance on the far right side. So really really cool thing just to play around with the ultimate goal for me has always been to get out of debt completely. But given the fact that interest rates are so low right now I wanted to make sure that I’m utilizing those rates to my advantage. So I usually play it pretty conservatively in the sense that I want a low interest rate and to keep the property leveraged if the cash on cash calculator makes sense.
[00:04:19] But I want to also make sure that I’m paying it down aggressively. So just for instance if I have a loan a mortgage amount of one hundred sixty five thousand for instance on a 30 year loan at an interest rate of 5 percent let’s say you can calculate that a monthly payment of eight eighty six a month P.I. principal and interest you can then go to the mortgage amortization schedule calculator and it will have a payment of the eighty six of the eight eighty six. There is one hundred ninety eight dollars that’s going towards your principal that first month for instance and then six hundred eighty seven is going towards interest. So the majority of it’s going to interest obviously.
[00:05:00] As that and as you pay down on that loan it adjusts. So more and more becomes paid pays towards principle the more more becomes less gets paid towards interest. So you can actually look and see how that that helps and then you can use some of these other items. For instance if I wanted to add let’s say you bought a property the mortgage amount was a hundred sixty five thousand but you wanted it was cash flowing. Let’s say five hundred dollars a month if you wanted to apply that five hundred dollars.
[00:05:34] Say one hundred that five hundred dollars towards your monthly mortgage payment so you can hit that enter that into this calculator. So hundred dollars goes more towards your monthly mortgage payment so you’re paying actually. Let’s see you’re paying actually eight eighty six. I’m sorry 986 versus the eighty six. Then it adjusts towards your uh your principal now rather than mean the one ninety eight is going to ninety eight.
[00:06:01] Abd that brings your mortgage payment down from let’s see a 30 year mortgage. It takes it down to being paid off and two thousand forty three. So you’re looking at it. It brings it down quite a bit about twenty four or brings it down about six years roughly. Looking at this calculator. So anyway it’s just really fun to play around with it.
[00:06:22] So my goal with buying these rentals was to have one property and either put that money aside to try and save up or applied for another mortgage to put more than one mortgage in or to pay down one more aggressively with that cash flow in order for me to then buy two. And the goal for me was always to have 10 properties leverage at all time. That’s kind of where the typical bank’s cap you on on what you can’t leverage 10 properties on at one time but then as I hit my tenth property leverage I want to have the the first one I bought paid off. So I always had 10 leverage but I was always paying one off every every time I was going to buy a property.
[00:07:02] So that’s kind of a brief synopsis of just how you can use some of these average station schedule calculators to play around with and figure out what works best for you and your model for buying properties.