All Forum Posts by: Andrew Thomas Vedder

Hi there!

Firstly, congratulations on the analytical thinking you're putting into this decision. That's what's going to get you far in real estate!

Both your strategies have their merits and which way to go largely depends on your goals and risk tolerance. Let's look at both scenarios:

1. If you follow your first thought of saving for the rental property, over a 30-year period, you're looking at a total cost of around $531K for your current property. Plus, you would have accumulated enough to put down on a rental property in about 10 years.
2. Now, if you opt to pay the extra $500 per month, you'll be mortgage-free by 2039, cutting your total cost of loan to approximately $383K. By 2049, you'll have saved enough for a down payment on a second property.

Here's where it gets interesting: By 2053, with the first strategy, you'd have approximately $475K in equity across two properties, whereas with the second strategy, you'd have $373K in equity.

It may seem like the first option is the clear winner, but remember: this doesn't factor in the potential cash flow if you decide to rent out your first property after it's paid off. That cash flow could be channeled into paying down the mortgage on the second property, accelerating your wealth accumulation.

Personally, I lean towards paying off properties as fast as possible. Reducing interest is like cutting down on a silent but relentless expense. Think of each fully paid property as a loyal worker, tirelessly building your wealth.

Your situation might be different, and it's important to consider what's best for you and your family. Dive into the numbers, weigh your options, and make an informed decision. Remember, there's no universally right or wrong answer here, just the one that fits your situation best.

Keep up the hard work, your clear thinking and determination will undoubtedly bear fruit!

@Andrew Thomas Vedder Not a REA, but an REP :)  See https://www.biggerpockets.com/...

Assuming you're not an REP (you would know if you are ;) all your passive rental income would go on your Schedule E on your 1040, and you would not be able to deduct losses beyond your rental income on your W2 or 1099 (schedule C, if self employeed) income.

Hopefully the BP article makes sense and is a good place to start.

Our goal is to reduce our net passive income to $0 and pay no taxes on it, and keep any non-depreciation expenses (that is, out-of-pocket expenses) to a minimum so that we're cashflowing.

Here's a contrived example:

- Taxable W2 (job) income = $200k
- Passive rental income = $20k
- Rental property expenses = $5k (mortgage interest, insurance, p-tax, etc. not including depreciation)
- Depreciation = $10k
- Your net rental income is $5k which would be taxable and added to your 1040 on Schedule E
- total taxable income = $205k

Second contrived example:

- Taxable W2 (job) income = $200k
- Passive rental income = $20k
- Rental property expenses = $15k (mortgage interest, insurance, p-tax, etc. not including depreciation)
- Depreciation = $10k
- Your net rental income is $0k and is reported on your 1040 on Schedule E
- The -$5k passive loss is carried over to the next year's taxes
- total taxable income = $200k (the passive loss will not affect your 1040 W2 income)

I hope that made sense :)

The holy grail is to become an REP and write-off those passive losses on your 1040.

@Andrew Thomas Vedder One item I'd add, that you didn't state, is whether or not you're a Real Estate Professional.

Since this is your first property investment, I would assume you are not (we are not either).  So if your total cashflow (rental income - all your expenses including depreciation) is the $2k, then that is added to your 1040 via the Schedule E and you pay taxes on it.

If your cashflow was -$2k (rental income - all your expenses including depreciation) then you can not deduct that from your 1040 income (since you are not an REP).  In this case you would carry-forward the loss to future years.  (your tax software should do that for you)

So far with our expenses we have not paid any income tax on our rental income (which does have a positive cashflow before depreciation).  So we are doing ok :). (note that we only have the one rental property, but will be expanding over the next year)

Owner finance and subject to. I just bought a property with a 4% interest rate. 

Hi BiggerPockets Gang,

By way of introduction - my name is Adrian and a new BiggerPockets fans. Learning a lot from this community. I started out from a humble beginning as an Immigrant from Indonesia and currently living and working a W2 job based on the Southern California market. I consider myself as a beginner when it comes to real investing. Currently with 3 rental properties (2 in Houston and 1 in LA) and currently working on a flip that are going wrong in every direction. Good learning experience though! 

I am investing in real estate with a goal of financial freedom and ability to support my family. With my family getting older and the intent to have more flexibility my life today's life to spend time with them, the idea of investing in a more cashflow friendly market definitely is something I am considering (understanding that appreciation factor will be limited). I am looking for advice from this community as to potential market that I can tap to and recommendations on great agent on this market where cashflow can be realized. Looking to get in with 100k to this market and hopefully expand. 

Just here looking to network with agent in these markets, fellow investors, and if I am lucky finding mentor in those markets to grow together and be accountable in this journey together.

Thank you so much for reading this post y'all and looking forward to hearing from you all and networking.

Adrian