All Forum Posts by: Fernando H.

As a general rule, if your DTI is high enough to cause underwriting problems then I would address it. Otherwise, keep buying investment property. Reduce your DTI not by targeting the highest interest rate or the biggest balance, but buy targeting the highest monthly payment.

For instance, I have a HELOC with a payment of $700/month, a personal loan with a payment of $1000/month, and a student loan with a payment of $107/month. It will help my DTI more to pay off the personal loan first, no matter what the terms of each of the two loans are.

What I like to do is to make a spreadsheet and divide the monthly payment by the outstanding balance and sort by this ratio. The higher this ratio, the more benefit you will see in your DTI by paying it off early. When you consider this, I get more DTI reduction per dollar by paying off the student loan first (it only has a remaining balance of $1814).

Keep in mind that if you'll pay off any debt within a few months (I think the rule is 6) then it is not considered in the DTI anyway, so don't throw cash at paying off balances that will be gone in less than 6 months.

What I don't like in your description is your cash flow after paying off mortgage. I'm not sure if this means you consider your cash flow to be Rent - Mortgage = $200. If so, this isn't correct and you need to add factors into this for vacancy, maintenance and capex. If you mean that once you pay off the entire mortgage balance the property will cash flow $200/month, then I'm concerned that you purchased a properties that do not currently cashflow. Whichever is true needs to be addressed urgently and is much more important than DTI reduction.

I hope this helps.

Thank you for your feedback.

Yes, Cash Flow of +200 is after paying off mortgage and factors such as vacancy, maintance, and repairs. I'm leaning towards aggressively paying credit card for next year before it starts encouring interest charges. and If I get a Home Equity Loan based on the equity of the new home, I can utilize it to re-invest in more properties and continue the cycle. (BRRR Strategy).

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Current Debt.

1 SFH: rented - $200 positive cash flow after paying off mortgage

2 Duplex: rent one and live in another: $200 positive cash flow afer paying off loan

3. SFH: *currently rehabbing* - free and clear - ARV 70K

4. Car Loan: 17k left - 60months - 3% interest

5. Home Improvement Loan: 30k left - 10yr loan - 8.75% interest

6. 20k credit card - maxed out - no interest for the next 12 months.

OPTIONS AFTER REHAB OF #3.

Option 1: Sell number 3 after rehab in a month, pay off 6 and 5, and 4 (no debt)

Option 2: Home Equity Loan at 80%, $200 cash flow in rent income, pay off 6 and 5.

Option 3: Home Equity Loan at 80%, $200 cash flow in rent income, pay off 6 and invest the rest in 1 duplex or 2 SFH

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Originally posted by @Alison Kovac:

I have 5 SFH paid off. Also my primary. I LIKE having things paid off. We finally decided to refinance the two most expensive homes to buy more. But my goal is to pay them off ASAP. This lets me sleep at night. Everyone has different levels and goals. I know some people like to put as little of their own money into things... but I really like to call it all mine. That's just me.

That is very impressive to have 5 SFH paid off. What's your strategy? concentrate on paying minimum on 4 and aggressively on putting the maximum allowed on your budget for 1. Or did you aggressively paid all 5 at once. either way is very impressive. I guess there are pros and cons of going either day; it really depends on the person and their short term or long term goals.

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Originally posted by @Jeff Lezark:

My vote is to invest. Paying down or paying off mortgages creates stagnant money. By that I mean the money you use to pay off the debt has no chance of compounding. Yes, the house may appreciate but your money paid in isn't causing this growth in value, market conditions are. Conversely, if the market turns against you any cash you used to pay down debt is at risk. The 3rd part is if you need to access cash to do a deal and it's tied up due to loan pay offs then you have to borrow your own money at current rates. Stay liquid and use leverage.

Yes, that is pretty much my main worry. If I need to access cash to do a deal and it's tied up due to loan pay offs, then I will have to borrow my own money at current rates. I rather have money to play now, If I continue paying minimum. By the time I retire in 35 more years, both houses will get paid off.

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Originally posted by @JD Martin:

What do your cash reserves look like? I wouldn't be dependent on a job to pay mortgages, though it is useful. I prefer having enough cash reserves for 12 months, minimum.

If your cash reserves look good, and if it were me, I would probably go the SFH route since that has the potential for more buyers should you want/need to divest at some point. MFH can be a very good investment but it is a whole 'nother animal.

I have about 6 month for cash reserves currently but will ultimately use it if I decide to invest. I can fallback on a credit card / loan in worst case scenario.

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I have 2 investment properties with decent cash flow. about $500 profit a month for both combined.

no other large debt and have a full time job that can cover both mortgages in the case is not rented.

I have full mortgages on both properties and not sure if to aggressively pay down mortgages on both or invest on another investment property for additional cash flow. if investing, the following are my options:

option A: Plan is to buy a distressed property at a city auction for about 10-20k cash with intention to do minor rehab and keep it long term as a rental. After rehab, I can get a home equity loan and have more money cash, to continue investing on 4th property.

Option B: Use that 10-20k as a down payment on a turn key multi unit for positive cash flow. not much room for further investing short term with this option.

Any advise from the BP community would be much appreciated.

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Originally posted by @Andreas W.:

If your goal is real estate transactions, then yes, use your equity and buy more. You are on a path to achieving your goal. If your goal is financial freedom, then you probably should pay down high interest debt and debt of depreciating "assets" first, and then think about re. Obviously, when you draw equity from your re, your cash flow situation will worsen, which needs to be taken into the calculation.

Yes, that is where I'm having difficulty on what path to take. Real estate transactions VS Financial freedom. I know I will definitely consolidate the Car loan / depreciating asset and It might be a smart to also pay off the high interest 30k loan as well even if my ROI will be higher on using those 30K on purchasing a multi unit and renting both units but is a risky move.

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Originally posted by @Victor Olowu:

Great answer @Austin Youmans

@Fernando H. You know how we love the passive income of owning rentals, well banks love that too! That 8.5% you're paying on the 30K is their passive income, they do nothing and you fork over money to them.

The car is also a depreciating asset, so I would find a way to eliminate that loan as well first before investing. These two actions should boost your credit profile with the lower debt-to-income ratio, and then you get even better rates on your HELOC.

Yes, The Car Loan being a depreciating asset and is killing my debt-to-income ratio, it will be smart to consolidate with the HELOC.

The 30K loan at 8.5% interest is a little higher interest than what I would like but it gives me flexibility to get a straight cash deal without having to jump hoops to finance later on. My ROI on one property will exceed the monthly cost of that 30k loan, more if its a multi unit.

Thank you as well for your assistance.

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Originally posted by @Kevin Bellavance:

@Fernando H.

Kevin, thank you so much for your feedback.

Calculating my Yearly ROI on a 65k 2 family house with 20% down - 30 yr mortgage - 4.5 interest if Rent is $650 for each unit. is 50.2% Yearly ROI on only 1 multi unit.

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Hey guys, I am new to BP, but am very impressed with the amount of experience and knowledge on this forum and its members. I need some financial advice.

I have 2 Rental properties where I am owner occupant of one of the multi units.

I have 60k in equity in one of the properties that I will like to use to consolidate debt or continue buying more rental properties for an additional cash flow with a HEL at 4.50% interest.

I have debt amounting to $1,500 / month that I can consolidate with a Home equity loan and be free and clear or use the 60k or a portion of that amount to continue buying more rental properties at 20% down where decent SF or Multi Units go for 60k.

car loan at 440/month - 17k left

installment loan 375/month - 30k left 8.5 interest

credit card 500/month - 7k left at 0% interest for 14 month

HELOC - 200 / month - 9k left at 3.50% interest

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All Forum Posts by: Fernando H.

Fernando H. has started 6 posts and replied 28 times.

Post: Pay off Debt for higher DTI Ratio or Invest? HELP!

Post: Pay off Debt for higher DTI Ratio or Invest? HELP!

Post: Pay down Debt or Invest?

Post: Pay down Debt or Invest?

Post: Pay down Debt or Invest?

Post: Pay down Debt or Invest?

Post: 60K to Invest or pay off debts?

Post: 60K to Invest or pay off debts?

Post: 60K to Invest or pay off debts?

Post: 60K to Invest or pay off debts?