Rental Debt Snowball Plan
Title card: rental debt snowball
Continuing with the series of real estate investment strategies, today I am going to break down the rental debt snowball plan. Fans of Dave Ramsey will recall this is a strategy he believes in for those who are in debt, but how does this apply to real estate?
While this plan takes years to see the true benefits, it’s a strategy that works really well for many.
Let’s assume you are gong to buy three properties that you will then rent out. You want to identify rental properties that you can get the best deal on to buy as low as possible.
Next you want to secure the most favorable financing you can on these three loans, let’s assume 20% downpayment on each home for an investor’s loan.
If you apply the 1% rule I discussed in a previous video, you’ll be making a decent cash flow on each of these properties once they’re rented.
After the properties are fully rented out you take the cash flow from property 1 and 2, add your monthly savings, and apply all of this to the principal balance of the smallest loan of your three properties.
As your do this year after year, a snowball effect is created, ultimately paying off the smallest of your three loans. After that, you have one free and clear property!
With this newly debt free rental, you can take the rent, your cash flow from another of your two remaining properties, plus your monthly savings to one of the two remaining properties with the smallest loan, and start to pay that off.
You are now repeating this process until a second property is fully paid off.
From there, you take the rents of now two fully paid off properties, add your regular monthly savings, and pay down your last of the three investment homes.
Again, this takes years to accomplish, but if you can be saving each month diligently, you will be that much further to three free and clear properties!
If you’re looking to learn more about real estate investing strategies like this, don’t hesitate to get in touch by following me @joesteelerealestate across all platforms. Prefer a video version of this blog? Please watch below and subscribe for more content like this!