hey everyone my name is Chad Carson you
can also call me coach and in this video
I'm gonna show you a technique where you
can pay your rental properties off early
the technique is called a debt snowball
a lot of you might be familiar with that
and personal finances people use it to
pay off credit card debt and student
debt that sort of thing but as a real
estate investor you can also use the
same technique to pay off your rental
properties so I'm going to show you not
only how to do it but how this can help
you achieve financial independence so
starting with a very small amount of
money you can invest that money you can
buy rental properties you can build up
some wealth with those rental properties
and then you can start using the cash
flow to pay them off and in the end have
a maybe a small portfolio maybe a big
portfolio depending on your goals but
have a portfolio of rental properties
that produce a lot of income every
single month and in a very low-risk way
of doing that so you can live off the
income and do what matters that's the
motto around here at coach Carson TV so
hope you're interested and stick around
as I show how to do that if you're new
here to the channel be sure to hit that
subscribe button and the little bell so
you don't miss anything this is how I
like to explain things I get the
whiteboard and draw it out for you and I
want to start off explaining why this
might be a good idea for you to actually
pay off your properties in the first
place I talk a lot about financial
independence here on this channel and
one of the very simple scenarios that I
want you to consider and this isn't
necessarily the numbers that you have to
use if you're gonna have a goal to
achieve financial independence but I
found this is a just a nice clear idea
on where you might want to go with your
rental properties so let's say you
wanted to get ten houses and you could
buy these ten houses and you originally
maybe make a down payment and you have a
loan but one of these days and used the
techniques I'm going to talk about here
in this video you get them paid off and
each one of your houses rents for twelve
hundred dollars per month that's what
you collect from your tenant if since
you have ten of them that's twelve
thousand dollars per month of course you
have some expenses and that's gonna vary
from house to house but let's say your
total expenses on all your properties is
five thousand dollars per month and you
would net you'd have left over after
your expenses seven thousand dollars
now this five thousand doesn't include
your mortgage because in the end
we're talking about here you've paid off
your properties so you make seven
thousand dollars per month or eighty
four thousand dollars per year from a
simple ten house portfolio and I like to
stop for this example before we get into
the nitty-gritty of how to do it because
if you imagine for yourself now maybe
this number is good
maybe this numbers way more than you
need maybe that you need a lot more than
this but the point is eighty four
thousand dollars for a lot of people can
be all they need in retirement this can
pay their bills they can live
comfortably and you can do it with a
very simple portfolio of properties that
you can manage yourself a higher
property manager but I have more
properties in this than in our own
portfolio and we could spend a few hours
per week one to three hours per week
doing the bookkeeping taking care of
things and so this can be a very
part-time passive thing to help you
achieve financial independence so let's
talk about how you might be able to get
there using the rental debt snowball
I've explained why you might want to do
a rental debt snowball to achieve
financial independence and to have
income from your rental properties now
I'll explain how it works and I can do
that in five steps now these first three
steps I'm gonna explain are pretty much
the same whatever type of investing
you're using with a mortgage and trying
to buy rental properties but simply with
number one you're just gonna save your
cash yes there are ways to get into real
estate with a little bit less money down
especially are gonna move into the
property and use like a lower down
payment loan program like FHA loans or
VA loans
there's all sorts of programs out there
I can show you some other videos how
those work but the bottom line is you're
typically gonna have to have some cash
to get started so just count on having a
period of saving money step number two
is to purchase some rental properties
and you could think of this as your
growth or your wealth building phase
where you have to go out and purchase
those rental properties and this could
take a few years on these first two
steps to get to the point where you have
a certain number of rental properties
and you're gonna invest all you're gonna
save all of your cash at that stage to
buying more rental properties so step
number three is that once you have those
rental properties both the first one and
the second one third one let's say you
buy multiple rental properties you're
gonna save 100 percent of that income
that you have from your rental
properties plus any other job savings
you have so you're gonna save 100
percent of that and the reason I say
that is sometimes people get like a
15-year mortgage or a 20-year mortgage
and they go ahead and start trying to
pay that loan down
quickly the prop that one particular
property the strategy here is not to pay
down each property separately the
strategy is to get the longest words you
can like a 30-year mortgage perhaps and
then you save a hundred percent of the
income on each rental property plus as
much as you came from your job in order
to do step number four now step number
four and here's the key of the rental
debt snowball is instead of paying down
each individual property and now that
you've owned enough bought enough rental
properties instead of buying more rental
properties you're gonna take all of the
savings you can and as much as money as
you can save and you're gonna apply it
to one loan at a time so that's the key
here if you take all of those extra
savings and I'll show you some numbers
in an example here in a second you can
actually pay your loan off a lot faster
we're talking about like four years six
years seven years instead of a 30-year
mortgage and you can do that instead of
spreading it out over multiple
properties it comes it goes a lot faster
by concentrating that's why I say all
here and that's why you apply it to one
loan and the cool thing is this is like
a step by step process you can repeat it
so if you have multiple rental
properties you can do one and the first
rental property might take a certain
period of time let's say five or six
years the second one because you freed
up the cash flow from that rental
property you just paid off you've now
increased your snowball you're starting
to roll that snowball is getting bigger
and bigger and starting to compound the
second one goes faster than the third
one and then the fourth one however many
rental properties you want to pay off
that's very flexible you can stop and
you can start and so that's the basic
process
let's take a look some numbers in an
example about how that works I want to
give a specific example and I'm gonna
keep it simple you know if you want to
do more properties in this you're
welcome to multiply the numbers and get
as big as you need to but this will make
it easy to understand let's say you have
a goal of having three houses free and
clear you can buy three properties and
at some point in the future you want to
get them free and clear and I recommend
this is a way to work it backwards and
start with a number of properties you
think you need and then you work it
backwards to actually buying the
properties and let's say you you know
this is gonna depend on your location
the type of property you buy but let's
say in the this particular market you
can buy a 3-bedroom 2bath house the
garage because it's easier to manage and
you'll find tenants who'll stay a long
time so you're gonna follow that
strategy easy too
and let's say this property rents for
$1200 per month and has $500 in expenses
so these are things like taxes insurance
maintenance capital expenses things like
that not including your mortgage payment
so when it's free and clear you'll have
$700 per month using today's numbers and
if you had three properties
that's 2100 per month and income so this
might be a way you're doing this on the
side you have other income in retirement
too this is a way to supplement your
retirement so that's the scenario of
what this goal might look like let's
look at the actual properties eBay and
look at the mortgage and the down
payments things like that okay so the
scenario in this example is that you
have good credit and you can go to bank
and get a loan a long term investor
mortgage by putting 20% down
so we had three houses remember and of
course these numbers are gonna depend or
depend on your location if you're in
somewhere in California in New York
you're gonna say these numbers are
ridiculous to buy a regular
single-family house but I happen to have
a couple smaller towns right near my
metropolitan area right I could buy a
little bit below median property the
median price might be like 180,000 and
we might be able to find a good deal on
a rental property these are gonna meet
us any old property you got to search
and find some properties but let's say
you find $120,000 property you buy it
420 you put 20% down to 24,000 you get a
loan for 96 thousand and my example I'm
gonna use four and a half percent
Interest 30-year mortgage you're keeping
track of that on the side you have some
closing costs and holding costs on the
side as well so just to figure out how
much cash you need to save you have
twenty nine thousand on this first deal
the second deal you buy a little bit
later and you buy a little bit higher
price so the numbers a little bit higher
you have $30,000 down on that one the
next is a little bit higher you have
31,000 down on that one so you buy three
properties very similar properties this
is how much cash you have invested total
so $90,000 total and that gets you to
the point where you have your three
properties the other thing about these
three properties is they produce income
remember the numbers I've shared with
you they each went for twelve hundred
bucks
and after expenses the operating
expenses they make seven hundred dollars
a piece but they also have mortgages at
this point because we have that's how we
bought the properties so each property
has a mortgage payment 487 507 527 this
is how much money they make
net income every single month after
paying all the bills before taxes but
typically in this stage you're gonna
have enough tax shelter called
depreciation it's a whole another
subject but most of the time this is
also gonna be your after-tax income so
you take this five hundred seventy nine
dollars per month and that's how much
you have from your rental properties
after a year or two if you've bought
these properties that's how much your
little rental business is producing an
extra income so now we've set the stage
on what those three properties you
bought look like let's look at the cash
flow that you produce so that you can
start doing the debt snowball to
remember you have five hundred seventy
nine dollars per month and net cash flow
from your rental properties we just
looked at that that's the difference
between your rent you collect the
operating expenses you have and then
your mortgage payments that's the total
you have and you're not gonna use the
cash flow on each property to pay down
each one you're gonna save that money
set it aside in a savings account you
then also I'm gonna assume you can save
five hundred dollars per month from your
job so you're still working a job and if
you have a pal a spouse or a partner
they're working as well and hopefully
you can save five hundred bucks if you
can do more than that this is gonna
accelerate it even better but for my
example I'm gonna use five hundred
dollars per month and then of course you
have one mortgage payment we're gonna
start paying off and in this example the
first for house number one is four
hundred eighty seven dollars per month
so we're gonna combine all of those into
one big mega mortgage payment this is
just an extra large mortgage payments
that have you sent in for eighty seven
per month you could send one thousand
five hundred sixty six per month now for
all practical purposes sometimes you
might want to actually send a separate
check or something just for accounting
purposes some Tauri just want to make
sure you track it really closely banks
don't always credit this correctly so
you can you know keep your accounting
records keep copies of what you've done
sometimes I even do it a little bit
variation this is a total an aside but
we actually save up the money and save
one big chunk and maybe send it every 12
months especially when we're saving up a
lot of money it's gonna be not quite as
good of a snowball not quite as fast but
sometimes accounting is just easier for
us so however you want to do it whether
you do it monthly send send this check
monthly or save the extra money and send
it once per year it's up to you but
that's just a note about how that works
you're gonna make one big extra payment
every single month in this example and
that's what it is fifteen hundred
$66 now what I want to show you now is
how fast and what this looks like and
how this snowball starts working
together over time so this graphic is
something I want to show you how this
big picture works for your rental debt
snowball you can also see this graphic
and a written explanation and a
companion article that's in the
description of this video but the way
this works remember in the very
beginning you had original savings at
ninety thousand dollars and you bought
three properties so we've gone over what
those numbers look like just a summary
here again you have a debt of here your
debt payments 487 507 and 527 and your
monthly cash flow on a yearly basis
right now is six thousand nine hundred
and forty-eight dollars that's how much
you're saving up when you have your
rental income coming in but the key
strategy here this wasn't make the
rental desk noble work is you reinvest a
hundred percent of the rental income
plus in my example you're saving an
extra six thousand dollars per year five
hundred dollars per month and you're
applying all of that to one rental
property at a time so there's one house
that we had 487 per month by doing that
about five years and ten months later I
did the math for you running the numbers
oh how long that would take with that
extra big mortgage payment remember 1566
when you combine the minimum mortgage
payment plus the extra cash flow from
your savings and from the rental income
it pays that first rental property all
for five years and ten months
pretty cool huh and so the cool thing is
you start moving up step by step you
have the progress of that and you now
have a property free and clear that has
no mortgage payment so now your rental
cash flow has increased from that
original that we had was six thousand
nine hundred forty eight to now you're
making twelve thousand seven or
ninety-two it's a little bit over a
thousand bucks per month plus you're
still saving the extra money the five
hundred dollars per month and you start
attacking debt number two a five hundred
seven dollar per month payment and that
takes a total from the year from the
time you started the cumulative time is
nine years and ten months so you're
almost at ten years and now you have two
properties free and clear so I'm one
more to go and but now you're making
eighteen thousand eight hundred and
seventy-six dollars per year so you're
making some good cash flow now and you
apply that into your third debt and in
twelve years and nine months from when
you started so this is when when you
start
buying your properties to the time you
have all three properties free and clear
you're now making twenty five thousand
two hundred dollars per year in cash
flow pretty cool huh
because you have no mortgage payments
because you applied those extra payments
really quickly you end up with a spot
where you have very little risk because
you don't have any mortgages if higher
cash flow and the thing I didn't take
into account here is twelve years later
is it possible you've had some
appreciation on your rent that your
rents are worth more that if things cost
more in society generally you've had
some inflation likely if you bought good
rental properties like this this number
is gonna be higher so is it buys you to
today's dollars likely twenty five
thousand dollars worth of income so that
is the process of a rental desk snowball
I like seeing a picture of it it helps
me understand it it also helps me
understand the benefits which I want to
talk to you next about some of the
benefits of a rental debt snowball and
why you might want to use it in your own
business
so you probably already know this but in
everything in real estate investing are
really any business or investing
strategy there's good and there's bad
there's pluses and they're minuses so I
want to go over the benefits and I'll
share a few of potential downsides of
using the rental debt snowball the first
thing I really love about it is the
control it gives you over your wealth
building so when you're trying to
achieve financial independence and
particularly we're trying to do it early
and a ten fifteen year period there's
multiple ways to get there you can
invest in the stock market and kind of
wait for stocks that go up in value and
your net worth increase you can own
rental properties and wait for them to
go up in value and owning the path of
progress where things get a lot better
and you can use appreciation to build
build your wealth but I really like
using the income from the property which
you you've already heard about here
saving that income and then paying the
lows down that's something you have
control over and rents do have a little
bit of fluctuation that in down markets
they might soften up a little bit you
got to lower your rents but they're not
nearly as volatile up and down as prices
are and so it's like a little engine
every year you're saving your money
you're reinvesting it and you're paying
your loan down and that's something you
can control you can look out ten years
from now or five years from now and say
this is what I'm gonna pay my property
off this is and then you have a very lot
of control over that as opposed to
letting the market and other
people control the process so that's a
big important thing number one number
two is I like the measurable visible
progress you make towards your goals so
if you have a goal and you believe you
can hit it and you can actually have
milestones along the way so every month
you're seeing your loan go down and in
three or four years later it's paid off
you're hitting these milestones we can
celebrate you can enjoy it and you can't
underestimate the psychological value of
that kind of progress that's really big
it works in sports when I played sports
having those milestones is really a bit
big and it works very well and real
estate invest into the third thing I
like is the flexibility you know
everything in life changes your plans
are gonna change we know that so when
you have a 10 to 15-year wealth-building
plan you have to be flexible and this
allows you a lot of flexibility what if
you get one property paid off and then
you lose your job you need to take a
break for a while you could put it on
pause you could put the debt snowball on
pause not pay down any more loans for a
while until you get your job back till
things you know work out and then you
can get back on the plan later on so you
can start you can stop you can go faster
if you want if you get a big inheritance
or you win the lottery you can pay this
off a lot faster so it has a lot of
flexibility you is measurable visible
progress and you have control let me
give you a couple of the potential
downsides just to kind of balance this
and give you a whole picture of how this
how this debt snowball works so a couple
of the downsides that I see with a
rental debt snowball that you might get
from other people or you might consider
for yourself and the first one is so you
have to have a lot of self-discipline
over many years to make this work so
that's just the way it is there's
there's no sugarcoating that that even
in the short term a five to seven year
period you have to save money
consistently every single month every
single year you got to not spend that
money you got to reinvest it and pay the
loan down and that's not an easy feat it
sounds pretty simple to do there's one
of those things that's simple and not
easy so you got to know yourself you got
to know am I willing to commit to
something for a 10-year period 12 your
period if it means that at the end of
that 12 year period I'll have free and
clear properties and I'll be able to
leave my job or I'll be able to have
more flexibility with my job have
financial independence do what matters
yeah that's that's the question that's
really not a question even just
rental debts no balls that's the
question for any kind of investing it
takes self-discipline and and you think
about a lot of the plans out there
retirement plans we're talking about
20-30 years they're asking you to wait
and we're talking about being
disciplined and focus then you can still
enjoy your life and have a lot of fun in
the mean time but you're saving a lot of
money and you're paying debt down during
that 10 to 12 year period so that is
definitely a challenge something you
need to be aware of up front the other
thing you might hear is hey you're
paying off loans and for example at 4
and 1/2 percent Interest so the best
you're doing is making a four and a half
percent return when you could be
investing that money somewhere else that
makes a seven percent return or a 10
percent return or a 20 percent return
and there's no sugarcoating that either
is that yes you are choosing to pay off
debt you are not choosing to maximize
your growth but let's go back to the
whole point of why you're doing this and
this would be my my counter point is
that you are trying to achieve financial
independence and the mechanism of doing
that is building wealth which you do by
owning rental properties you put down
payments you hopefully they're growing
over time but you're also trying to
achieve financial independence which yes
has to do with maximizing the amount of
wealth you have but also has to be about
reducing risk by paying off debt
increasing your income so you can live
off of that and so there's always a
balance between those things and there's
no there's no free lunch you got to
trade things off and the idea and this
has been a personal experience of mine
is that if you get to a point we have a
very low risk portfolio and in my book
retire earlier with real estate
I called that having a income that's
really what you're doing here you're
kind of building a base a floor
underneath your portfolio so that you
get this nice low risk income coming in
and that doesn't mean you can't also
invest for growth somewhere else but
maybe you do this debt snowball on part
of your portfolio you also have a 401k
than invest in the stock market or in
real estate we have some other rental
properties that you're trying to
maximize growth on and these are just
your income floor so that you can cure
and tea that you have a nice amount of
income coming in just to pay some basic
bills that's the idea here is you're not
trying to maximize growth of this part
of your portfolio you've already grown
enough you're trying to get to a point
we can live off the income and reduce
your risk so those are some downsides if
you have any other thoughts in the
comments below let me know I don't had
the only answer here and that in one
solution it's not always right for
everybody so let's have a discussion in
the comments to see what you think about
the rental debt snowball as well so I'd
love to hear from all of you in the
comment section below do you want to pay
the debt off on your rental properties
how do you feel about carrying debt
first paying it off when do you think
it's a good idea to do that and if you
do want to pay off your debt on your
rental properties is the debt snowball
the technique that you plan to use if
you like this video I really appreciate
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look in the description below there's a
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financial independence so just click
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you spending some time with me here
today I'm coach Carson TV my name is
chad Carson you can also call me coach
and this is a channel all about
investing in real estate so you can
achieve financial independence and do
more of what matters see you next time