All Forum Posts by: Jackson Pontsler

I'm a real estate investor who speicalizes in the helping people solve financial difficulties typically brought on by a troublesome property.  I take pride in being able to help individuals if I don't think I can personally help you with a situation I will connect you with an individual who will take care of you in areas where I may lack.

If you found this helpful please let me know

@Dane Kania if you are going to be continually purchasing rentals you need to keep up your debt to income ratio.  This is the advantage of maintaining a W2 job.  Another way to fund your deal is to always be asking if seller financing is on the table.  We are able to secure a deal right now via seller financing that will have a huge upside for future developments.

@Scott Bowles there are many additional factors rather than just your credit score to determine if you qualify for a loan.  My wife and I have excellent credt 770+ but after purchasing several investment properties we are reaching the edge of our debt to income ratio making it very difficult for us to keep purchasing properties.  The properties themselves vary in price based on the number of units assoated with them.  To get your best guess I would recommend talking with a bank and express your financial situation and they can tell you what then can provide you with.

I hope this help if it does please let me know.

Hey Paxson,

If you aren't comfortable with the stress of being a landlord or highering a property manager have you ever thought of just being a PML for flippers.  Its a little tricky but once you nail it down you will be investing in real estate without any of the hassel of actually investing.  If you found this helpful please let me know.

Respectfully,

Jackson Pontsler

Few things.

1.  Completely reasonable plan!  Best of luck with finding a good house for you and your family.

2.  I would start interviewing for renters as soon as you're under contract for the new house for more efficiency.  You essentially would move into the new house and then have renters come in.  I understand where your husband is coming form (having to worry about 2 mortgage payments but if you can show you have enough reserves that should enable him to move forward).  In my personal opinion moving twice is one time to many.

3.  Its fine that you and your spouse have different personalities.  If you are on the same page that you are going to work together on it that means you have different strengths in this buisness.  i.e. my wife is very dominant and strong willed so she works with contractors.  I'm more interactive and stable so I work on the acquisition side of acquiring our deals.

Best of luck!

If it sounds too good to be true more than likely its too good to be true.  Proceed with caution if you are looking are purchasing this property has things may have happened i.e. demolition, drugs etc....

I recently engage with a conversation with a fellow investor and we discussed the merits of putting down a larger down payment with the property doesn’t cash flow. After discussing several points I wanted to dive deeper into the merits of large vs small down payments, mainly could a larger down payment make a non-profitable deal more profitable. This is mainly for individuals who feel that investing out of state is not an option.

I currently reside in Salt Lake City, UT. In certain A+ neighborhoods a rental house can cost 400k, the rent for these houses are around $2,000. Some real estate investors argue that it is alright to be a couple of years in the negative is ok because appreciate would equal things out, however I do believe many people overestimate the amount a person can raise rents year over year and the true costs of a rental property.

To simplify the analysis I will follow with the basic rule:

Market Rent: $2,000

Rent Appreciation: 2%

Property Tax (monthly 230)

Insurance (233)

Interest Rate: 5.5

Real Life Cost: 10% Repairs, 10% Property Taxes, 10% Vacancies

Yes I know that there are many more factors but then this article would be absurdly long.

                                            $80,000 Down Payment                     $120,000 Down Payment

Year     Rent               Annual Cashflow    ROI Annual Cashflow ROI

0          2000                    -10560               -13.2%                            -7836                -6.5%

1          2040                   -10080                -12.6%                             -7356               -6.1%

2          2080.8                  -9590.4            -12.0%                              -6866.4             -5.7%

3          2122.41               -9091.01            -11.4%                           -6367.01            -5.3%

4         2164.8                 -8581.63             -10.7%                           -5857.63            -4.9%

.......

29        3551.68               8060.273           10.1%                             10784.27           9.0%

30       3622.72               8912.678            11.1%                             11636.68           9.7%

Ok so we have a bunch of numbers but what does it mean? Well let’s first look at the big picture.

Total Cash flow for 80k: -$54,253

Total Cash flow for 120k: $30,190

So looking at these numbers we can see a difference of over 80k. The argument of you are paying for negative cash flow upfront with a larger down payment is debunked here.

Let’s get even fancier

So we looked at a basic comparison but there are more factors here we can tweak and compare. Let’s look at some other scenarios.

With a 120K down payment we can get a lower interest rate of 5.25%

What about getting a property for 5% down payment at interest rate of 6%

What about only positive cash flow?

                      $120,000 @ 5.25%                     $20,000 @ 6%                              $230,000 @ 5.25%

Year          Annual Cash Flow   ROI Annual Cash Flow ROI Annual Cash Flow ROI

0                            -7308           -6.1%                    - 16092              -80.5%                -24                  0.0%

1                            -6828           -5.7%                    -15612               -78.1%               456                  0.2%

2                            -6338.4         -5.3%                   -15122.4            -75.6%             945.6                0.4%

3                           -5839.01        -4.9%                    -14623              -73.1%             1444.99             0.6%

4                          -5329.63         -4.4%                    -14113.6          -70.6%            1954.37184        0.8%

...

29                       11312.27        9.4%                      2528.273         12.6%              18596.2726       8.1%

30                       12164.68       10.1%                     3380.678         16.9%             19448.678          8.5%

Interesting Stats:

Total Cash flow for 120k: $46,557

Total Cash flow for 20k: -$225,745

Total Cash flow for 230k: $272,362

Time to equalize everything! Let’s take the cash flow and subtract the down payment to get a clear view of costs. We will take the lowest number and set it to zero and add the difference to the other numbers.

                                       80k               120k @5.5                 120k *5.25              20k                230k

Equalize Cash flow   $111,492          $155,936                  $172,304                $0               $288,108

We can see from here that putting down the lowest down payment is not always a great option. Sure it’s good for acquiring a property however the total cost of mortgage and renting it out was overall 100k more expense than its other counterparts.

Don’t be fooled

By looking at what we have concluded it would be easy to state that the more money you put down would be better however you are using 230k. Which is almost 3 times as much as the first option so let’s compare taking that 240k and break it up into buying 1, 2, and 3 properties.

                                       3 Houses 80k Down Payments     2 Houses 120k Down Payments    1 House 240k Down Payment

Total Cash Flow                            -$162,760                                      $93,117                                                   $292,822

Total Increase                             -$402,760                                    -$146,883                                                    $52,822

We can see from this analysis that the only truly positively cost option is the large down payment however we can see that if we bought 2 houses we at least would have some positive cash flow over the 30 years of owning the property.

So clear winner right?

NO, the final part of this equation is looking at the properties after the 30 year mortgages. We now have cash flowing properties that are all flowing more than 30k a year.

                                3 Houses 80k Down Payments      2 Houses 120k Down Payments       1 House 240k Down Payment

Total Cash Flow          $92,150                                                       $61,433                                                    $30,716

By projecting 10 year more we can get a clear picture of when each option is worth it.

We can see that after 10 years of holding the properties after they are paid off we are now in the positive and in the lead for overall cash flow with buying 3 properties with 80k down payment each.

So what does this all mean?

For those who are looking to optimize their investment for the long game congratulations you bought 3 houses and held them for 40 years you can now sit back earning over 90k a year from your investment congratulations!

Clearly buying 3 houses will give you the best long term investment however many of encounter problems and difficulties where we may need to liquidate our investments. In this case I would say take a better look at a bigger down payment you may start cash flowing positively right from the start or at the very least it will take you less time to turn around and start making a profit. However that advise my friend received from a real estate agent saying just buy it for 80k and wait for appreciation to catch up my friend would have paid over 100k in expenses till he starting making a dime from positive cash flow obviously he might want to look at working with an investor friendly realtor who would know the ramifications of buying negatively flowing houses.

DISCLAIMER: Obviously if you can't positively cash flow properties in your market it might be time to look for another market.

I recently engage with a conversation with a fellow investor and we discussed the merits of putting down a larger down payment with the property doesn’t cash flow. After discussing several points I wanted to dive deeper into the merits of large vs small down payments, mainly could a larger down payment make a non-profitable deal more profitable. This is mainly for individuals who feel that investing out of state is not an option.

I currently reside in Salt Lake City, UT. In certain A+ neighborhoods a rental house can cost 400k, the rent for these houses are around $2,000. Some real estate investors argue that it is alright to be a couple of years in the negative is ok because appreciate would equal things out, however I do believe many people overestimate the amount a person can raise rents year over year and the true costs of a rental property.

To simplify the analysis I will follow with the basic rule:

Market Rent: $2,000

Rent Appreciation: 2%

Property Tax (monthly 230)

Insurance (233)

Interest Rate: 5.5

Real Life Cost: 10% Repairs, 10% Property Taxes, 10% Vacancies

Yes I know that there are many more factors but then this article would be absurdly long.

                      $80,000 Down Payment        $120,000 Down Payment

Year Rent Annual Cashflow ROI Annual Cashflow ROI

0        2000        -10560                -13.2%         -7836                     -6.5%

1       2040         -10080                -12.6%         -7356                     -6.1%

2       2080.8      -9590.4              -12.0%         -6866.4                   -5.7%

3       2122.41  -9091.01              -11.4%         -6367.01                -5.3%

4       2164.8    -8581.63              -10.7%         -5857.63                 -4.9%

.......

29   3551.68   8060.273                 10.1%        10784.27                9.0%

30   3622.72   8912.678                 11.1%        11636.68                9.7%

Ok so we have a bunch of numbers but what does it mean? Well let’s first look at the big picture.

Total Cash flow for 80k: -$54,253

Total Cash flow for 120k: $30,190

So looking at these numbers we can see a difference of over 80k. The argument of you are paying for negative cash flow upfront with a larger down payment is debunked here.

Let’s get even fancier

So we looked at a basic comparison but there are more factors here we can tweak and compare. Let’s look at some other scenarios.

With a 120K down payment we can get a lower interest rate of 5.25%

What about getting a property for 5% down payment at interest rate of 6%

What about only positive cash flow?

                 $120,000 @ 5.25%                        $20,000 @ 6%                              $230,000 @ 5.25%                                     

Year Annual Cash Flow ROI Annual Cash Flow ROI Annual Cash Flow ROI

0              -7308                       -6.1%                 -16092          -80.5%                    -24                  0.0%

1             -6828                        -5.7%                 -15612           -78.1%                    456                 0.2%

2             -6338.4                     -5.3%               -15122.4         -75.6%                    945.6               0.4%

3             -5839.01                 -4.9%                 -14623            -73.1%                  1444.99            0.6%

4            -5329.63                  -4.4%                 -14113.6         -70.6%                 1954.37184       0.8%

...

29         11312.27                  9.4%                  2528.273         12.6%                   18596.2726      8.1%

30         12164.68                10.1%                  3380.678         16.9%                   19448.678        8.5%

Interesting Stats:

Total Cash flow for 120k: $46,557

Total Cash flow for 20k: -$225,745

Total Cash flow for 230k: $272,362

Time to equalize everything! Let’s take the cash flow and subtract the down payment to get a clear view of costs. We will take the lowest number and set it to zero and add the difference to the other numbers.

                                       80k                      120k @5.5                         120k *5.25                      20k                                 230k

Equalize Cash flow      $111,492          $155,936                           $172,304                            $0                               $288,108

We can see from here that putting down the lowest down payment is not always a great option. Sure it’s good for acquiring a property however the total cost of mortgage and renting it out was overall 100k more expense than its other counterparts.

Don’t be fooled

By looking at what we have concluded it would be easy to state that the more money you put down would be better however you are using 230k. Which is almost 3 times as much as the first option so let’s compare taking that 240k and break it up into buying 1, 2, and 3 properties.

                                     3 Houses   80k Down Payments                    2 Houses 120k Down Payments                     1 House 240k Down Payment

Total Cash Flow                     -$162,760                                                           $93,117                                                                 $292,822

Total Increase                        -$402,760                                                         -$146,883                                                                $52,822

We can see from this analysis that the only truly positively cost option is the large down payment however we can see that if we bought 2 houses we at least would have some positive cash flow over the 30 years of owning the property.

So clear winner right?

NO, the final part of this equation is looking at the properties after the 30 year mortgages. We now have cash flowing properties that are all flowing more than 30k a year.

                                   3 Houses 80k Down Payments          2 Houses 120k Down Payments1 House            240k Down Payment

Total Cash Flow               $92,150                                                            $61,433                                                             $30,716

By projecting 10 year more we can get a clear picture of when each option is worth it.

We can see that after 10 years of holding the properties after they are paid off we are now in the positive and in the lead for overall cash flow with buying 3 properties with 80k down payment each.

So what does this all mean?

For those who are looking to optimize their investment for the long game congratulations you bought 3 houses and held them for 40 years you can now sit back earning over 90k a year from your investment congratulations!

Clearly buying 3 houses will give you the best long term investment however many of encounter problems and difficulties where we may need to liquidate our investments. In this case I would say take a better look at a bigger down payment you may start cash flowing positively right from the start or at the very least it will take you less time to turn around and start making a profit. However that advise my friend received from a real estate agent saying just buy it for 80k and wait for appreciation to catch up my friend would have paid over 100k in expenses till he starting making a dime from positive cash flow obviously he might want to look at working with an investor friendly realtor who would know the ramifications of buying negatively flowing houses.

DISCLAIMER:  Obviously if you can't positively cash flow properties in your market it might be time to look for another market.

 “Turn your obstacles into opportunities and your problems into possibilities.” 

― Roy T. Bennett, The Light in the Heart

@Joe Villeneuve I completely agree with you that saving up the money to make the investment cashflow is not an ideal option.  I only mentioned it because the more money you put down the less your mortage is and it will be easier to cashflow.  Yes you are paying it upfront but if someone wants in invest in a certain market that isn't great for cashflow then that would be an option.  Not an attractive one but if you believe the market in your area is strong it may be worth the buy in especially if you are oppose to look at other markets.