All Forum Posts by: Michael Masters

How much tax do you owe and how much are you looking to borrow?

This is not my area of expertise, so wise people on this website will likely tell me not to venture into this!  I am not a lender, I'm an investor that typically buys major city-center multifamily.  However, I live close-by (30 minute drive), recently retired from my day-job, and if the loan is not too large, I might be willing to do a deal just to learn a bit more about another side of RE.  

I certainly don't want to get into the business of being a "bottom feeder" that takes advantage of people, but if there is space in the industry for someone to help people in your situation while making a fair profit, I wouldn't mind learning more and getting involved.

If interested, message me.

That's exactly what I'm saying, pay off your entire balance before the statement closes (option 1), not on the actual payment due date (option 2)

                                                              Option 1               Option 2

Prior statement balance on Nov 1             $0               $5,000

New charge on Nov 5                         $10,000             $10,000

Paid on due date Nov 10                             $0              -$5,000

Paid on closing date Nov 30             -$10,000                      $0

Statement Balance on Nov 30                    $0              $10,000

The ultimate goal is not to pay off your statement balance in full each month.  Your goal is to have a statement balance of $0 every month.  Credit agencies ding you for having a statement balance.

Here's a little tidbit I noticed a few years ago that I thought I would share.  I'm giving a reverse example, as in I will show how my credit score dropped 59 points in one month because I forgot to do my "trick".

The trick is to pay off your entire balance the day of your "statement closing date".  Many think that paying off their entire statement balance every month is the best you can do, this is not the case.  You want to have a statement balance at zero or as low as you can get it.  At least try to have all credit cards below 20% of the their individual limit.

The first image shows the drop of 59 points and the second shows the reason, I forgot to pay down one of my Citicards before the statement closing date.  Even though I paid off this $19,000 balance in full, the fact that I had a statement balance at all killed my score.  

Next month I'll show you the updated score with my balance paid off, it should shoot right back up again.

You don't need to do this all the time, but I make sure to do it for the three months before I take out a loan.

Image 1

Image 2

After 5 years you are $74,476 better off with the 5 year ARM. However, you will need to pay the additional cost of securing a new mortgage.

This is based on:

* I added $600 to ARM to cover its additional expense (increases monthly payment to $5,104)

* No prepayment, except all paid off at end of year 5 for both loans

These are the monthly movements, I hid a lot of rows for simplicity

I track rates by following:
https://www.walkerdunlop.com/funding-your-vision/financing-o...

These are Freddie Mac rates which will be better than what you can get elsewhere, but it will give you an idea of how much rates have moved recently.  See the chart below.

I follow all rates they publish which will be:

*LTV = 0.55 & DSCR = 1.50

*LTV = 0.65 & DSCR = 1.40

*LTV = 0.80 & DSCR = 1.20

*Fixed - 5 yr, 7 yr, 10 yr. Hybrid - 5 yr, 7 yr, 10 yr

All amortized over 30 years even if the loan has an earlier balloon.  Fixed means there is a balloon payment, hybrid means it floats after the fixed rate ends.

If you tell me which loan and what LTV and DSCR will be I can post a specific chart

I'd pay towards one only and I'd choose the one with the lower LTV. This means if you need cash you can remortgage just one property to access the money instead of two, cutting fees and work in half.

Then I have this chart which adds the Fed rate for both historical and projected rates.  This doesn't track as well to the Freddie commercial rate but it gives the Fed's view of future rates.

I use the site below for Freddie Mac interest rates, not sure of the exact source of it though.  I find that the Freddie interest rate is 90% correlated to the prior quarter 10-year Treasury, also shown in the graph.

https://mf.freddiemac.com/aimi

https://www.treasury.gov/resource-center/data-chart-center/i...

Two more reasons to stick with individual mortgages:
* Liquidity requirements - Let's say you have 3 properties with monthly mortgage payments of $5,000 each.  If you have a portfolio loan that requires liquidity of 6 months payments then you need $90k sitting idle to meet that requirement.  If you mortgage these properties individually (and space them out, not all renewed at once) then you only need $30k.

* Spread the Risk - As interest rates rise and fall, having three mortgages spaced out will reduce your risk.  Imagine if you had your whole portfolio all renewing today, at what is hopefully the peak of interest rates. 

For these reasons, and those mentioned above, I like to have more than one mortgage in place. 

https://www.walkerdunlop.com/specialties-sectors/small-balan...

If you want more info, DM me.