All Forum Posts by: Mitchell Hein

I think this ultimately comes down to the following: Will your return on investment be better with a new purchase than your current return on equity for that $200K?

If your property is cash flowing $500 a month right now, that is 6k a year, so your return on equity for your 200k is 3%. If you can get considerably better than 3% on a new deal, it may make sense to extract that 200k and move it into a new deal. 

Keep in mind though that your return on equity on your 400k equity goes from 1.5% right now (assuming 500/mo positive cash flow) to getting a -3% on the remaining 200k in equity, so that is also a factor. So basically, whatever new investment you get would need to make up for the now -3% return on your remaining 200k in equity. So I would think the new investment would need to shoot for 8%+ return to be a better move than just leaving your capital in the current property.

I agree with the "it depends" approach when it comes to determining reserves, but generally, it should align with the age and anticipated maintenance needs of the property.

For example, we have a duplex built in 2003 with the original AC units and roof. Given its age, we’re planning for a roof replacement and two new AC units within the next few years, which we estimate will cost around 15 - 20k in total.

Our single family rental, built in 2020, is newer, so we don't expect major repairs anytime soon.

On average, the duplex runs about $400–500 per month in maintenance and repairs (including significant repairs like AC replacements), whereas the SFR averages under $100 per month. To cover these costs, we keep approximately $15,000 in reserves for the duplex and $5,000 for the SFR. This reserve amount represents roughly 2–3 years of projected repair costs, which might be a conservative approach, but it gives us a buffer for unexpected, high cost repairs when they pop up.

With a larger portfolio, the reserve pool wouldn’t need to grow proportionally, as funds and repairs can be balanced across properties, allowing costs to offset each other over time. In other words, if one property requires a major repair, reserves from other properties can help cover the expense, reducing the need for each individual property to have a fully stocked reserve at all times.

I recently analyzed mortgage rates to see which option would offer the best return on investment and balance between monthly payments and long-term costs. 

Loan and Property Details

• Purchase Price: $355,000
• Down Payment: $17,750 (5%)
• Loan Amount: $337,250

I used local estimates for taxes, insurance, and PMI to calculate the total monthly payments.

Rate Comparison Breakdown

The buy down costs for each rate were provided to me by my lender on Oct. 22. Starting at 7.125%, each 0.125% rate decrease lowers the monthly payment by about $28.39. Here's a breakdown across different rates, showing monthly payments, cumulative costs over 5, 10, 15, and 20 years, and Year-over-Year ROI over those same periods.

Based on the numbers, I chose the 7% interest rate. Even though the other buydowns lower the payment more, the 7% seems to be the best bang for your buck. The buydown costs increase significantly after 7%, which decreases ROI considerably. The ROI is a YOY calculation based on the initial investment of the buy-down cash.

I am curious to hear others' approaches to deciding whether or not to buy down the interest rate and by how much. These are just my personal calculations so I am also open to any suggestions on what I may have missed or not considered here!

Here are the full numbers:

Smaller table for mobile:

While I don't have years of experience to draw on for how the real estate market behaves around elections, I believe it's like most aspects of investing—unpredictable. Recently, I was debating whether to lock in the mortgage rate for a single-family home we're purchasing in December, especially with rates spiking recently, or wait until after the next Fed meeting and election to be finalized. Ultimately, I realized that trying to wait for a perfect moment feels a lot like attempting to time the stock market or predict a real estate bubble.

There may be advantages to waiting and seeing how the election affects market policies, but it's hard to predict when those policies will take effect or how they’ll impact the market. I'm sure there are agents and investors with deeper insights, but for most of us, a consistent, long-term approach—similar to dollar-cost averaging when investing in index funds—seems like the most practical strategy.

That being said, I am also interested to hear what others have to say though, so thank you for the post!

You are already in the right place in the BP forums, but try to consume as much podcast and reading material as you can. My favorite book and the one that got me started was Set For Life by Scott Trench (a Bigger Pockets book).

Also, if you are in the position to do so, house hacking is a great way to get started! The goal would be to find a duplex in your area, live in one side and rent out the other. Your remaining mortgage will be smaller than you would typically pay somewhere else in rent and you will have your tenant on the other side helping to pay off the rest of the mortgage.

2 and 3 are important! 

When we moved from our house-hacked duplex into a single-family home, we overlooked a key step—informing both our insurance company and lender about the change. A few months later, we received a notice from the lender stating that we no longer had home insurance and needed to secure coverage within a certain number of days.

As it turns out, our original home insurance was canceled because it required the property to be owner-occupied. We quickly switched to a new provider that allowed for rental properties, and everything worked out fine in the end.

Now I know—next time, I’ll make sure to update both our insurance and lender before or immediately after converting a primary residence into a rental!

I don't fully agree with blanket statements like this. Whether a property makes sense as an investment depends on the specific situation, the current market, and the buyer's goals. You might find a great deal on a property that comes with an additional Mello Roos tax, and it could still be worth it. Everyone’s investment strategy is different, so I wouldn't say a particular tax should be a dealbreaker for most investors. It's similar to saying that you should always put down 20% to avoid mortgage insurance—sometimes it’s smarter to put down 5% and keep more cash available for other opportunities. It all depends on the context.

You could calculate your Cash on Cash and Total Return over the next 5-10 years (assuming a buy-and-hold strategy) using different appreciation rates. Run scenarios with 2%, 4%, and 6% annual appreciation to see how your returns might vary. Then, compare those returns with the stock market’s historical 8-10% long-term gains to evaluate whether the investment makes sense.

Also, consider whether you can comfortably cover the $1,000 monthly shortfall. Banking on appreciation always carries some risk, but if the numbers work, even with 2% appreciation, the asset may still be worth acquiring long-term.

My current allocation consists of approximately 40% real estate, 40% equities (low cost ETFs and index funds), and 20% cash. While the cash allocation is somewhat high, it serves as a reserve for our rental properties and future real estate investments, held in a high-yield savings account. This amount fluctuates, typically peaking before a property purchase and then gradually decreasing as we rebuild reserves for the next opportunity. As our net worth grows, we aim to adjust this allocation to 45% real estate, 45% equities, and 10% cash.

 They actually do a 1 year full warranty and then 10 year parts warranty with the company I am using. And they estimate the life span of either system to be about 14 years.