How I Paid Off My First Rental Property When I Was 23

Hello! Today, I have a great guest article to share from a reader, Katelyn from Hey You Finance. She bought her first rental property at 19 and paid it off at 23. Enjoy!

I bought my first investment property when I was 19 years old.

Less than a year after high school graduation, I became a landlord. What’s even better is that I was able to pay off my first rental property in just over 3.5 years. 

How did I do it? Let’s back up a little… 

Allow me to introduce myself, I’m Katelyn. 

I’m your average, middle-class individual from Southern Indiana. 

I grew up with supportive parents and two younger siblings. 

When I was in high school, I wasn’t really all that sure of what I wanted to pursue as a career yet. 

I think this is a common problem, unfortunately. 

After taking a general accounting class my senior year, I realized that I loved finance. 

I had always loved numbers, but finance was a whole new realm in the math world. It was real world, real life stuff. 

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I started working for a CPA (Certified Public Accountant) in November of my senior year of high school after being referred to the position by a friend. 

This hands-on job experience proved to be invaluable. 

I was learning all kinds of financial things that just weren’t being taught in school. 

When high school graduation rolled around, I didn’t feel called to attend a four-year school. 

Instead, I started working for the CPA full time. 

I enrolled in night and online classes at a local community college to work towards earning a two-year Associate Degree in Accounting. 

This was a much more affordable route to take as I was responsible for paying for my own schooling. I even ended up receiving tuition reimbursement of about $6,000 from my employer as part of my compensation. 

Even though I was attending college courses, I was learning WAY more by actively working in the accounting field. 

A few of my responsibilities while working for the CPA were to process weekly payroll and quarterly payroll returns, record and process transactions as a bookkeeper, and to file individual and partnership tax returns. 

These tasks allowed me great insight into better understanding my own personal finance. 

I was able to understand what each line item on my pay stub meant, where that money was going, and how it filtered through to my tax return. 

Personal finance applies to everyone. Fortunately for me, I very much enjoy it! 

About one year after high school, I had accumulated a bit of savings. 

This wasn’t that hard to do because I was still living at home while I was working full time. 

My cost of living was very low. The only recurring expense I had was gas for my vehicle. There would be other miscellaneous charges on my credit card, such as clothes or toiletry type items, but not very often.    

I lived well below my means. 

My parents always encouraged my siblings and I to diversify our income, so I felt that it was time to start letting my hard-earned dollars start working hard for me. 

I was ready to invest. 

My parents had a pretty lengthy track record of investing in rental real estate. I was lucky enough to witness this growing up and I had gained a solid background knowledge of how it all worked. 

It was a subconscious learning over the years, though. They never point blank explained the process, but instead they exposed us to the rental world by taking us along to property showings and giving us the responsibility of maintaining the yards.

It was this exposure that allowed us to learn how to communicate with tenants and how to address any issues that they might have with the property. 

The best thing about investing in rental real estate? 

Rental income is passive income. 

Passive income is essentially income that is earned “behind the scenes”. It requires minimum effort to maintain and therefore is classified as passive, as opposed to active income where time must be traded for money. 

An hourly job is an example of active income, whereas income earned from an investment is most often passive. 

With rentals, time must be allocated to address repairs, maintain the lawn, manage the financial end of things, and meet with prospective tenants. 

There is also the option of hiring these tasks out but depending on how large your rental portfolio may be, it will severely cut into your profit. 

Once the things mentioned above are taken care of, rental income flows in on a monthly basis. 

In an effort to diversify my income and knowing that I only had so many hours in a day to trade for money, I sought out after passive income. 

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I bought my first rental property. 

My parents became aware that the property would be for sale, and they asked me if I’d be interested. 

We’re a pretty transparent family and they knew that I had been saving money. They also encouraged investing. 

I said, “Of course!” 

While I had been aggressively saving, I didn’t know exactly what I was saving for. Life in general I suppose, but this seemed as good of an opportunity as any. 

I pursued the property. 

The sellers were asking $148,000 or $149,000 and we eventually agreed on a purchase price of $141,000 for the side-by-side duplex.

Oh – the good old days! This was obviously way before the housing craze of 2020/2021 where houses sell for well above asking price. 

With my savings, I was able to pay $21,000 down on the property, or roughly 15%. 

This left me with a 20-year loan of $120,000 at a 4.25% interest rate. My monthly payment came to $746.87. 

For the first few months, I made the minimum loan payment and didn’t think too much about it. 

It wasn’t until my dad suggested that I make extra principal payments that the light bulb went off inside my head. 

I suddenly recalled working with amortization schedules at the CPA firm. 

[An amortization schedule is essentially a table that calculates how each loan payment is allocated to principal and interest each month. There is also a column that allows you to calculate how extra principal payments will impact the term of your loan and how much you will save in interest over the life of the loan.] 

I quickly searched for and downloaded an amortization schedule off the internet. 

With the download, I began plugging and chugging numbers to see not only how much quicker I would be able to pay off my first rental property, but also how much I would save in interest by making extra principal payments. 

I became obsessed. 

I wanted to pay off my first rental property as soon as possible. 

Luckily for me, both sides of the duplex were occupied with loyal, paying tenants that had already been living there for over 20 years. 

This can be an incredibly rare find in the rental real estate world! 

With both apartments being rented out, I was bringing in a gross monthly rental income of $1,100. 

Gross income is income before any expenses or taxes are paid out. 

This income more than covered the mortgage of roughly $750. After property tax, insurance, and utilities that I was responsible for were paid, my cash flow on the property was at a breakeven point. 

Breakeven means that I was essentially paying out in expenses the same amount of income that I was bringing in. 

I was okay with this as the tenants were basically making all of the property payments for me, yet I was the owner. Over time, this is how equity is built in real estate. 

Since the rental income that I was collecting had the minimum costs of the duplex covered, I was able to apply nearly everything else I was earning to pay off the balance of the mortgage. 

Now, I was on a mission. I wanted to be able to say, “I paid off my first rental property.” 

Around this time, I was completing my Associate Degree program and my evenings were about to free up. 

With debt payoff in mind, I picked up a few side hustles to supplement my full-time accounting job. 

First, I started waitressing. Since I was used to sitting at a desk all day, I was looking for an opportunity to work in a faster paced environment. 

I found that in being a waitress. The position that the restaurant had open was for Friday and/or Saturday nights. 

I gladly accepted the gig because all of my friends were away at college anyway. I didn’t mind committing my weekend evenings to work when I knew the end goal that I had in mind. 

The legal federal minimum wage of a waiter or waitress is $2.13/hour, which is well below the general federal minimum wage of $7.25/hour. This means that servers are incredibly dependent on tips for their total earnings. 

I enjoyed this concept. I liked knowing that if I worked harder by being busier with more tables, my earnings for the night would reflect that. 

Obviously, this is an average statement. All tippers are different, some being more generous than others. Overall, a busy night typically meant higher wages. 

I was still trading my time for money, but it wasn’t the same hourly wage that I was used to. 

In fact, my average take home pay per hour from a night of waitressing was actually more than what I was earning per hour in my day job as a staff accountant. 

Talk about motivation! While this income was helping me to accelerate my debt payoff journey, it was also helping me to realize the importance of supplemental income. You know, that thing that my parents had always preached about. 

To my advantage, another side hustle opportunity arose. 

A lady in town, we live in a very small town, reached out to my sister to tutor her daughter in math. 

My sister, knowing that math wasn’t her strong suit, passed the gig on to me. 

You must know by now that I’m a numbers nerd! I jumped at the opportunity. 

My roster of one math student quickly grew to two, then three, and I was tutoring in the evenings Monday through Thursday. 

I was well on my way to paying off my first rental property. 

All of those extra hours were paying off. Ha, no pun intended! 

To summarize, I was a full-time staff accountant by day. Come the evening, I tutored and/or waitressed Monday through Saturday. 

I kept earning, saving, and making additional payment towards my rental property loan. 

If I had any extra money sitting in my checking account, I put it towards the mortgage. I was depleting my cash intentionally, knowing that with my various income streams and low cost of living it would replenish quickly. 

After what seemed like a very long 44 months, I paid off my first rental property. 

As mentioned earlier, I used an amortization schedule to track my progress. This helped me to visually see how my extra payments were being applied and how much quicker I was going to be able to pay off my rental mortgage. 

While I was working to pay off my first rental property, I must admit that I was blessed with good renters, not having to pay for any major repairs, and having supportive parents that encouraged investing while allowing me to still live at home. 

All of these things combined with my aggressive debt payoff method have proved to be a venture that I will benefit from for years and years. 

I’ll let you in on a little secret. I actually had a goal of paying off my first rental property before I turned 23. Unfortunately, I was two months late in accomplishing this; however, it was for a darn good reason! 

I used some of the extra money I had earned to put towards a down payment on a house – a personal residence for myself! 

Even though I didn’t quite reach my goal, I still accomplished the bigger picture of what I set out to do. 

By paying off the rental property mortgage, I was able to free up $746.87 of cash flow each month. 

All of the rental property’s other expenses, such as insurance, property tax, and utilities, are still there and must be paid, but I no longer have to make the roughly $750 monthly mortgage payment. 

Instead, this is an extra income stream that I get to allocate as I wish. 

Paying off the rental mortgage early did more than just increase my monthly cash flow. It also allowed me to show the bank that I can make timely monthly payments and handle debt responsibly. 

The hard asset of real estate is something that will {hopefully} appreciate in value over time. 

I was even able to use the collateral that I built up in my first property to buy my second rental property just eight months later with no down payment. 

So, what am I doing today? 

I’m nearing my 26th birthday. I got married a few months ago to the most wonderful man on the planet. Thankfully he, too, is a money minded individual that appreciates saving, investing, and a good debt payoff strategy.  

We just purchased our third rental property a few weeks ago and have high hopes of having our nearly $600,000 real estate portfolio paid for in full by the end of 2021! 

It all started with that first rental property that was purchased a little over six years ago by my then teenage self. By paying that loan off to increase monthly cash flow and combining our financial lives after marriage, we have been able to snowball the debt repayment on other properties. 

It is the supplemental earnings from these ventures that will allow us to live a more “secure” financial life as we do not depend on just one source for our income. 

In fact, I hope to one day be able to replace my full-time income from my day job with income from our own ventures. 

The moral of the story is that you can follow any financial path that you feel led to. 

Gone are the days where your only option was to attend a four-year college, then work 40+ years earning an income from only one source, and finally retire at 65. 

The opportunity is there. Go and seize it! 

With technology today, we have so much information that is *literally* at our fingertips. 

Instead of scrolling aimlessly through another social media feed, open up a web browser and start searching for ways to supplement your income, grow your investment portfolio, or accelerate your debt payoff today. 

Personal finance is just that; it’s personal. It applies to everyone, yet everyone’s journey is different. What do you want yours to look like? 

Set goals for yourself and don’t stop or let up until you achieve them. 

This story of how I paid off my first rental property when I was 23 is one that I want to share with others in hopes of providing a little inspiration.

You don’t have to be born into money or receive an inheritance to build wealth. 

You do have to work hard, save & invest aggressively, and plan your goals accordingly. 

Author bio: Hey, I’m Katelyn! Numbers nerd turned personal finance blogger. My hobbies include detailed budgeting, balancing my checkbook, and investing in real estate. (I wasn’t kidding when I said nerd, ha!) At Hey You Finance we aim to help you maximize your financial potential by encouraging diversified income, budgeting, investing, and managing your debt wisely! The backbone of financial success is knowing where your money is coming from and, more importantly, where it is going.

What is going to be the next step on your financial path?