All Forum Posts by: Brian Jackson

I spoke with an accountant who recommended I compare a 5/1 ARM vs a fixed rate loan in a spreadsheet. They said many times the ARM is the better option since less money goes to interest and you get lower payments which allow you to make additional payments to pay down the principal. I did a calc on today's real numbers (6.6 fixed vs 6.1 ARM) on a 1M loan and I save about $25,091 in interest (more equity) and pay about $19,620 less mortgage payments (opportunity to pay down the principal) at the end of the first 5 years. The lower monthly payment ($6059 for ARM vs $6386 for fixed) could go to principal. But you have to subtract out the cost of a possible refi if rates rise and you need to get out of the loan.

The accountant says this would let me build up equity faster. After 5 years if rates go down you are golden but if rates go up you might get stuck refinancing into another 5/1 ARM or fixed loan with a high interest rate.

On large loans like this 1M example, is a 5/1 ARM better than a fixed rate loan?

Why not refinance 5/1 ARM loans every 5 years rather than getting a fixed rate loan initially?

I am in Southern California and plan to purchase and keep a long term rental property locally even though its cash flow negative and the landlord tenant rights aren't great because I know the area and can do repairs on it myself.  It is going to be cash negative for a long time but at the end I think it will appreciate significantly and have a strong positive cash flow.

That said before I sink my obligations into this I wanted to run the numbers against the most cash flow positive areas.  Cash flow positive rentals would not tie up my finances as much and allow me to turn around and buy more.  So with that said what are the most:

1) Positive cashflow cities?

2) Tax friendly states?

3) Landlord friendly states?

I own my 1.5M primary residence free and clear, and am taking my first steps into being a rental property owner.  And have about 5k monthly income I can use to cover negative cashflow.

There are no cashflow positive properties in my area and am very reluctant to look elsewhere because I would like to have it be nearby, and dont want to complicate taxes by adding another state.  Plus I know the local neighborhood and can diy some repairs.

I am looking in my local area of southern California coastal cities where SFH and multi-units can be found from 800k-1.5M+. I am also aware that the market might go down this year and have my eyes on price declines. I know it will remain cashflow negative for many years but I believe in the end it will have a very strong appreciation and positive cashflow.

To finance the purchase I am considering pulling out $726 cash out refinance (the conforming limit) (lower interest rate) and mortgaging the rest (higher interest date). If I am only going to purchase one rental property with the goal of paying it down asap and keeping it long term, should I consider a different financing alternative? A HELOC is not better in this case since this would be a fixed amount and long term loan, right?