Originally posted by "Wheatie":
Calixto's correct about why I was including the rehab costs. You want to look at the deal by itself, so you should include all costs. Sometimes people will say "this will cash flow if you put down 30%". Thats a line of bull to convince you a bad deal is really a good one. The hidden assumption there is you're willing to put money into an investment that returns NOTHING. If I put money into an investment, I want a return on that money.
Could not have said it better myself Jon, too many people get caught by maketing schemes and end up biting it hard in the end.
Originally posted by "Wheatie":
I don't care for the ARM scheme Calixto describes. Every dollar I pay in interest is a dollar out the door. Even with the tax deduction, its some large fraction of a dollar that should have been mine and isn't. Your scheme, Calixto, amounts to borrowing money (the principle payments you would have made) and investing it elsewhere. If it works, you're borrowing at a low rate, further discounted by your tax rate, and earning a higher rate in an alternative investment. An IRA is not tax free, just tax deferred. You pay tax on that money when you take it out. Money going into a Roth IRA is taxed first. So either way, there is still tax, and that reduces your effective rate.
I would not call it a Scheme for that word sounds too harsh for the investment idea I had in mind. And the way I see Jon is that you have to spend money to make money, for all that interest you pay is for an investment purpose and is 100% tax deductable. This is a very good way to leverage your income at the end of the year when tax season comes along my friend. Yes it amounts to borrowing money (if you want to simplify the meaning), but that is what the banking insitution you pay the principle does to it anyways so why not.
Yes and IRA is not tax free it is tax deferred and you do have to account for taxes on the money itself before you contribute to the account.
Tax-Free Distributions. Qualified distributions from a Roth IRA are Federal income tax free. While your contributions to a Roth IRA are never tax deductible, your distributions are free of federal income tax. If you have owned the Roth IRA for at least five years and meet one of the four qualifying events outlined below:
You are at least 59 1/2 years old.
Your withdrawal of up to $10,000 (lifetime limit) is applied to a first-time home purchase. (You may qualify for the "first-time home purchase" if you have not owned a home for at least two years before the date on the purchase contract or the date when construction started. You, your spouse, or a descendant or ancestor of either may qualify as the buyer.)
The withdrawal is made to a beneficiary or to your estate as a result of your death.
The withdrawal is made because you are permanently disabled.
Withdrawals. The taxable portion of a nonqualified distribution may be subject to a 10% early withdrawal income tax penalty prior to age 59 1/2. If you make withdrawals that do not meet the rules for a qualified distribution, you’ll owe ordinary income taxes on the portion of the withdrawal that represents earnings, and you may also have to pay a 10% income tax penalty if you are under age 59 1/2. Withdrawals prior to the age 59 1/2 that are used to pay for qualified education expenses for you or other family members are not subject to penalty tax, but you will have to pay ordinary income tax on the taxable portion of the distribution, however.
Originally posted by "Wheatie":
This scheme sounds like some sort of guru or seller nonsense to convince you bad deals are really OK. "Here's a deal that won't cash flow with a 30 year mortgage. But it works with IO. So, invest the difference between the IO and 30 year loan payment (where does that come from, if the deal doesn't work with a 30 year note) and earn some more money on that". If the alternative investment is the better deal, why not invest the whole payment in that deal?
I am not a Real Estate guru nor am I caliming to be one I just thought it would be some nice information to know. It is not my job to convince the man that my way is the best nor is it your job to convince him otherwise. If you do not like my idea then tha is fine Jon you have stated your opinions and I have stated mine. And I think we should leave it at that my friend, thank you for your time and have a wonderful day.
