In my previous post where I shared my $10 million FIRE goal by age 40, I mentioned that my investment allocation will be 30% in real estate. That’s $3M of my own cash invested in rental properties, and I fully intend to leverage that $3M as much as possible, leaving me with a whopping $7M of debt! That doesn’t even include my current $1.2M jumbo mortgage for my primary residence, which would have a remaining balance of around $900K by then. That leaves me asking myself, “After voluntarily acquiring $8.2M in debt, how long will it take before I become debt-free?”

My Investment Allocation and Income

Before diving into my debt-free timeline, we first need to know how my $10M nest egg will be invested, how much income it will yield, and what my resulting after-tax income is.

TL;DR - By 2030, my $10M investment portfolio should result in a $268K after-tax income. With $180K in annual expenses, I’ll have about $90K in additional savings every year.

If you want the juicy details on how and where my $10M nest egg will be invested, how much pre-tax cash flow I expect to have, and how much income I will have after taxes, read my $10M FIRE number blog post. It’s quite detailed, and it will certainly help you think about your FIRE number, your investment allocation, and tax situation.

My $8.2M Debt

Between the years 2020 and 2030, the peak of my total debt will amass to $8.2M, which combines my primary residence and rental properties’ mortgages. When I dive into my debt-free timeline (below), the calculations begin in the year 2030 since that is when I will begin paying down my debt with additional $90K of income. At that time, my $8.2M debt will reduce naturally (by paying minimum payments every month) and look like:

Primary home: $900K
Combined rental properties: $6.4M
Total: $7.3M

To keep the math simpler, I am assuming that I will acquire my rental property debt evenly over the years, meaning the average age of those loans will be 5 years old by the time it’s 2030. That means I’ll have 25 more years to go before all my mortgages are paid off without additional payments.

Debt-Free Timeline, Starting in the Year 2030

Putting all those numbers together, we can now start looking at my debt-free timeline starting in the year 2030. My plan is to use all $90K of my extra cash to pay down my remaining $7.3M in debt as quickly as possible, starting with the loan with the highest interest rate. However, I may decide to pay off my primary mortgage first before moving on to all my investment properties’ loans, even though its 2.75% interest rate is bound to be lower than the rest. It’s something I need to strongly consider to give me and my family peace of mind, knowing we own the home we live in outright.

As we look through the below debt-free scenarios, I’m assuming that I will have 20 rental property mortgages, each of which has a 30-year fixed interest rate with an average starting balance of $350K (equal to 70% of $500K purchase price). Each time I pay off one of those mortgages, I am able to use that savings to pay off the remaining mortgages, creating a snowball effect. That extra savings per paid off property comes out to about $24K per year after taxes.

Debt-Free Scenario 1: Pay Off Primary Home’s Mortgage First

In this first scenario, I will take the $90K in extra income and focus on paying off my primary home’s mortgage first. Doing so will take me 9 years, 2 months (I did the math on the side). Paying only the minimum payment for all 20 rental properties during that same timeframe, their combined loan balance will be down to $4.9M. That’s great progress, given my total debt in the year 2030 was $7.3M!

Now that my primary home’s mortgage is paid off, my extra income rises from $90K to $150K because I no longer have a $60K annual mortgage payment! Using the entire $150K extra income, I can now aggressively pay off my rental property mortgages.

As I mentioned earlier, every time I pay off one of my rental property mortgages, I’ll use the extra savings (about $24K per year) to pay down the remaining mortgages. So starting at $150K in extra income, after the 1st rental property mortgage is paid off, my extra income rises to $174K. After the 2nd is paid off, it rises to $198K. And so on and so forth. After all 20 rental properties are paid off, the total extra income, after $180K in annual expenses, should amount to a whopping $630K per year! Let’s see when that becomes a reality.

I took the liberty of doing the calculations outside this post to save us from the pain of staring at amortization schedules and created the above graph as a result. The graph starts just before the year 2040, since that is the time at which my primary mortgage is paid off and is the point at which I start aggressively paying off all 20 rental property mortgages.

The blue line shows when I’d be debt-free if I didn’t accelerate my loan payoffs. The red line shows my loan balance as I aggressively pay them all off. As you can tell, the rate at which I become debt-free accelerates dramatically, as I have fewer and fewer loans to pay off and my extra income dramatically rises.

This chart represents my additional income I’m gaining over the years as each rental property is paid off (assuming no increases in rising rental rates). As the previous chart indicated, my extra income rises exponentially as more and more rental properties are owned outright.

Time traveling ahead, after paying off my primary home’s mortgage around the year 2040, it takes another 10 years, 5 months to pay off my remaining rental property debt (when the red line crosses the $0 mark) just before the year 2050. So in this scenario, I’ll be debt free by 2050!

TL;DR

Primary home’s 30-year fixed mortgage begins in the year 2030 with a starting balance of $1.2M.
20 rental property mortgages’ begin, on average, in the year 2025 with a starting balance of $7M.
By 2030, I have $90K in extra income to aggressively pay down my primary home’s mortgage first.
It takes 9 years, 2 months to pay off my primary home’s mortgage.
During those 9 years, 2 months, my 20 rental property mortgage balances naturally reduce from $7M to $4.9M.
My extra income rises from $90K to $150K per year since I no longer have a mortgage on my primary residence.
Using the extra $150K, I begin paying off my rental mortgages one by one. Each time one is paid off, I use that extra savings ($24K) to pay off the remaining mortgages, creating a snowball effect.
It takes 10 years, 5 months to finish paying off all rental mortgages.
Debt-free by the year 2050, resulting in a conservative $630K in annual, recurring passive income.

Now let’s see how my debt-free timeline looks if I pay off my rental property debt first.

Debt-Free Scenario 2: Pay Off Rental Property Mortgages First

Starting all over, this is the scenario where I take my initial $90K in extra income and focus on paying off my initial $7M in rental property mortgages first. I’ll skip over the gory details this time and simply summarize the outcome.

TL;DR

Primary home’s 30-year fixed mortgage begins in the year 2030 with a starting balance of $1.2M.
20 rental property mortgages’ begin, on average, in the year 2025 with a starting balance of $7M.
By 2030, I have $90K in extra income to aggressively pay down my rental property mortgages first.
It takes an additional 17 years, 10 months to pay off all my rental property mortgages.
During those 17 years, 10 months, my primary home’s mortgage balance naturally reduces from $900K to $90K, just a few years away from reaching its full 30-year term.
Over the course of paying off rental property mortgages one by one over the 17 years, 10 months it takes to pay all of them off, my extra income rises from $90K to $570K per year.
With only $90K balance remaining on my primary home’s mortgage, it takes just 2 more months to pay it off.
Debt-free by the year 2048!

Summary

Between the two scenarios, the 2nd scenario is better since I’ll become debt-free 2 years earlier by paying off my rental properties before my primary residence. I’d be debt-free by 2048 instead of 2050. Both cases are very good scenarios!

I fully intend to continue to publicize my debt-free journey both here and on Instagram, so be sure to along to find out which path I end up taking!

With $8,200,000 In Debt, When Will I Be Debt Free?