All Forum Posts by: Michael Corona

Paying one off first will give you the fastest increase in cashflow. If you’re looking to save the most interest, even though they are all the same interest rate, it turns out paying each loan the same additional amount will save you the most. I’ve done the math on this and it’s hard to explain to someone why even though the interest rate is the same paying one off first saves less interest.

The basic reason is $1,000 extra paid with 20 years left saves more interest than $1,000 paid with 10 years left. Giving each loan $1,000 will save more interest. For the same reason that prepaying $1,000 extra each month saves less and less interest.

Im not clear on the $2300 rotating extra payments. Simply tack $100/$200/whatever extra amount on to each payment every month. The sooner they have the money the sooner you save the interest.

Ps. This assumes they all have equal length remaining. If not paying towards the loan with the longest remaining term would save the most.

Thank you Bill, this is in-line for what I am looking for.

0 Votes

Originally posted by @Theresa Harris:

In addition to how much cash flow there is, the important missing information is how much your mortgage payments are.

If you pay off house 2 which has $11K/yr cash flow, and $1K/month mortgage payments, once that house is paid off, you now have another $1K to apply to the other mortgages. compare this to house 1 with $7K/yr cash flow and $500/month. Once that is paid off, it gives you an extra $500. Yes it will take you longer to pay off house 2, but the amount of cash flow after the mortgage is paid off is also important.

info is there to calculate it. PV, N and i all above.

Perhaps I am overthinking it.

0 Votes

Originally posted by @Costin I.:

@Michael Corona - I would snowball them - pay first the one with the higher interest rate and/or interest/principal ratio. Use the cash flow from all to concentrate on that one till it brings it down where the principal portion of the payment is substantially bigger than interest payment (70% or 80%+, but that depends on personal preference). Then do the same on next one. Once it reaches 80% ratio (80% goes to principal, only 20% goes to interest) I would let them ride to completion as you wouldn't save that much by paying them down - you'll be probably better served by saving that money and investing it in other properties.

I posted a more detailed response to a slightly similar thread - what-are-you-doing-with-rental-income - read it for more info.

But Michael, you are a financial adviser, shouldn't you already have the answer? :>)

Maybe, but I have yet to meet a single person who knows everything in their profession, and the one that claims to do is the one I run away from.

Thanks for your feedback!

1 Vote

My personal view on when is now. You should always be comfortable to invest if the math works and you are in a position to do so.

If you're not comfortable when things are good, you will never ever be comfortable when the streets are full of blood. This is an emotional fact.

4 Votes

Hi Jon! I completey understand arbitrage, leverage and their benefits and I appreciate you bringing them up.

We can get into specifics of my personal plan if you would like, as each investment strategy is unique to the individual. Feel free to PM me and I can explain; perhaps I am missing something and you can shed some light on that.

Above said, for purposes of this post I am curious, as to the math on the paydown.

Cheers,

1 Vote

All things being equal (term, interest rate, etc), if mortgage paydown is the goal with multipule properties, which strategy would result in paying off a small portfolio of properties the fastest? (1) Spread cash flow equally, (2) send all cash flow to one and rotate between properties quarterly, or (3) send all fash flow to a specific property to pay off) the idea to save the most interest.

Example:

3 properties

1-$75,000 mortgage @ 5.25% 20 year, $7,000 cash flow

2-$145,000 mortgage @5.25% 20 year, $11,000 cash flow

3-$145,000 mortgage @ 5.255 20 year, $10,000 cash flow

Option 1 above would be to apply the respective cash flows to each property

Option 2:

Jan, April, July, Oct send $2300 each month to property 1

Feb, May, August, Nov send $2300 each month to property 2

March, April, Sept, Dec send $2300 each month to property 3

Option 3:

Send all excess cash flow to proerty 1 until paid off and repeat.

Again, I am only concerned about the math on the paydown, assuming everything stays equal. I understand there will be vacancies, expenses, repairs and cash flow is going to vary.

My hunch is option 2 will result in the fastest paydown due to interest savings over time on all properties, but I am not sure.

thanks.

0 Votes

All Forum Posts by: Michael Corona

Michael Corona has started 1 posts and replied 7 times.

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