Perfect deduction calculation...

[William Huston]

Hello all, I wanted to get some opinions on this, was at a meetup tonight playing cashflow game with others and I mentioned to someone how I've had such difficulties after loan 5, that I was thinking of buying my property with cash vs paying off one of my current loans, because they have 3%ish interest rates.... guy at my table mentioned that it would be smarter for me to invest time in calculating my perfect deduction amount and purchase the next property with that exact amount. Basically he told me he was a CPA and mentioned that a lot of investors he does taxes for leverage everything and leave so much deductions on the table vs income... Basically he was telling that if I calculate out my deductions, I could finance only x amount to optimize my taxes and increase my Roi overall over paying all cash even with the higher interest rates on investment loans

[Michael Plaks]

@William Huston

It sounds like this CPA was looking at cash flow thru his tax deduction glasses. As in - let's figure out how much interest you can deduct, and let's get a loan that generates this exact amount of interest, regardless of the size of the loan and its interest rate.

If this is what he had in mind, I consider such approach very counter-productive.

The starting point in this discussion should be leverage. There're actually two mutually exclusive schools of thought on this subject. Some people (a minority) frown upon debt and preach minimizing leverage. Their arguments are higher cash flow and lower risk of default. The majority's opinion is that leverage is what allows you to grow your portfolio and equity, so get as much debt as possible, but of course watch the terms and cash flow.

Once you choose your religion, assuming you choose leverage, you're looking for the funding. Seems like you're limiting your search to either conventional financing or cash. You have more choices, and BiggerPockets has forums dedicated to financing, such as this one, and some good articles like this one or this other one.

Tax deduction for the mortgage interest should really be at the bottom of your list of considerations, if at all.