All Forum Posts by: Nicholas B.

Maybe I'm getting off of the original topic here, but as far as deductible interest:

Say hypothetically, I'm already filing itemized and all of the interest in this investment will be tax deductible. It will all remain in the 28% bracket for the entire 10 years. 

In example 1, I'll pay $6,486 in interests and deduct $1,816, leaving a cost of funds at $4,670.

In example 2, I'll pay $17,658 in interest and deduct $4,944, leaving a cost of funds at $12,714. 

I'm using this simple math because it's what I understand. To me, this seems pretty obvious though. How would it make sense to pay and extra $11,000 in interest in order to save $3100 in taxes? I've never really understood this ideology... 

 @Charlie Fitzgerald, can you clarify the relationship of the loan to your statement? I have a basic understanding of both terms, but I can't seem to think of any way that they relate to the term of a loan or having the loan paid or not. Thanks.

Thank you all for the comments. I'm guessing that maybe it's just not talked about because it's not as glamorous as "earning an extra $300 a month by doing nothing" or "building your portfolio using other peoples money". 

There's a lot to learn about all this, but for somebody in my shoes, it seems the plain and simple is a penny saved is a penny earned. Saving $21k in interest seems pretty damn sensible to me.

Deleted (mistake), sorry.

Regarding small scale rental properties or I believe "buy and hold" is the term used around here (sorry, I'm new to all this).

I notice that a lot of investors mortgage properties for 10, 20, even 30 years - whatever it takes to produce a (sometimes barely) positive cash flow. It seems that a lot of them end up in a "one day, I'll be rich" scenario of waiting out the mortgage before they really have solid usable income from the rent checks. Maybe they put a couple bucks in their pocket, but in the mean time, they're paying thousands in interest and often run into difficult DTI problems when they go to finance something in their name.

Do people who have the disposable income ever intentionally enter a negative cash flow deal in order to get to the "I keep the rent $" phase sooner and save the interest? Or more importantly, why not?

I'll add an example in case I'm not really clear:
Let's assume an initial loan amount of $60,000, $3000 / year of taxes and insurance, and a rental income of $1200 / month analyzed over ten years. Assuming that repairs and maintenance will be paid out of pocket. Total income would be $144,000 minus the out of pocket expenses. Please bare with me for simplifying all of this to get to the point. 

• If I take a 5 year HEL at 4.115%, P&I = $1108 + $250(T&I) = $1358 x 60 months is $81,480. Then another 5 years of tax & ins totaling $15,000. Total investment is 96,480, leaving an income of 47,520. For the first 5 years, I'll have to float $158 / month totaling $9,480, but the next 5 years, I'll have $950 of additional income totaling $57,000.
• If I take a 10 year HEL at 5.365%, P&I = $647 + $250 = $897 x 120 mo is $107,640 total, leaving an income of $36,360. Each month, I'll have a positive income of $303, totaling the $36k.

Maybe I'm missing something. I guess I just wonder why I read so much about making "positive cash flow" leveraged deals, but nobody ever talks about just getting the thing paid off and then enjoying the income. This is something that I'm actually considering doing in the future, so feel free to save me from myself. Thanks!

Just thought I'd introduce myself as I've been poking around the articles and forum for a bit. As the title says, I'm a DIY guy. I really enjoy doing my own home improvements and I have lots of tools and experience.

My last 10 years have been spent working on my first house bought in my mid 20's. It's a simple, 75 year old cape cod that was in rough shape when I purchased it, with shoddy work done by a bad flipper. We have a few more projects in mind, but it's currently livable.

That brings us to the plan. We decided that we'd like to branch out a bit and purchase our first rental property next year. I don't have any "get rich quick" aspirations. I figure we'll shop diligently and take our time and when the time is right, we'll jump on a small single family home near our neighborhood. I'd like to take a neglected home and make it right and hopefully find some quality tenants that will keep the bills paid. Maybe do that another dozen times or so throughout the next couple decades if it pans out.

I'm not sure how we'll finance it, yet. We have good cash flow and excellent credit. Coming up with some cash down should be feasible. I think I'd like to try to stick with short term loans (5-10 year max) and pay them off as quickly as possible, but I have a lot of research to do there. I believe our price point right now is around $60,000, but that's the bottom of the low in this area. That may change, too. Buying a foreclosure may make sense, but I know very little about that process.

You'll probably see me posting in the DIY section as I've learned a lot over the years and enjoy helping when I can. As time goes on, I'm sure I'll have many questions. so hopefully I'll find some help here!