All Forum Posts by: Nnabuenyi Anigbogu

@Joe Villeneuve

I understand what you mean. However no matter how i calculate it with any amount of monthly payment, all else being equal you pay more interest with the lowest balance method.

I ran it through my excel using 1% of the balance as the payment amount for each loan. Assuming the OP puts an extra 500 towards paying above the minumum payment the below is what happens. You can see that the interest paid is higher. Also it takes longer to pay off the first loan but once you do it takes about the same amount of time to finish paying off everything if you keep the monthly payments the same.  

I have yet to see any math that shows you save more interest with the lowest balance method assuming all else is uniform.

@Joe Villeneuve

From everything that is have seen and read (and also number crunched multiple time), all else being equal it is usually better to pay the higher interest debt first whether or not it is the highest balance or longest payment. I have yet to see math that contradicts this. Now im talking about loans in general and not specifically properties. However i dont see why it cant apply to properties in the same way. If there is something i am missing or some math you can point me to please do.

Now in terms of which one makes the most sense it depends on the individual. from what i have read the snowball method works more often and better than the higher interest method because of the psychology of seeing that small balance erode quicker. Also for investors that freed up cash flow earlier helps. However you usually pay more interest if you look at the math objectively (you just make a higher return from the cash flow to make it worthwhile). Hence why i said it requires extra discipline to go with and stick to the higher interest method.

 Stone,

If that is your primary motivation then i believe it behooves you to do a bit more research and see how you can get that cash out refinance done. What are the reasons you cannot do a cash out refi? Is it DTI? It cant be number of mortgages because you can get up to 10. What is the reason that dropping to 6 mortgages will allow you to cash out refi one of the other ones?

The only reason i can see and think of is DTI (there could be other things im missing since i dont know the whole story). If it is DTI then there are a myriad of ways to get around that. One way, if you have good equity positions on some of the properties is to combine a few houses under a blanket mortgage that can be underwritten on the income it brings in as opposed to your personal DTI. So if the rental income is great you can refinance. Another way is to find a portfolio lender that lends based on the DSCR of the asset. Not sure how common that is for SFR but its worth looking into.

there are many more ways that im sure experts on here can weigh in on. If you want to pay of the houses for peace of mind then that is great and im 100% behind that. But if you are looking to accomplish something else then there are other ways to accomplish it besides sinking your available cash into the houses.

I agree with @Erik Johnson. Paying off the higher interest loans will yield a higher return most if not all the time. The only benefit of paying off the small ones first is that you get the higher cashflow faster but it costs more in the long run compared to paying the higher interest debt first.

The debt snowball method referenced works but it doesn't save you more money. It is a way to trick your mind because you see the debts being paid off faster (smaller debt gone in 6 months vs bigger one in a year). This is only for those without the discipline to stick to paying off debt because they don't see any immediate results. If you go this route make sure you have a concrete reason for it such as needing the cashflow faster since i assume you are disciplined. 

@Charlie Fitzgerald The reason i wanted the funds was because i already had a couple of flips i passed on because the condo didnt sell. I wanted to use the funds from the sale (35K+) to put a downpayment on a flip that could be finished just in time for prime selling season. I however understand your advice and im slowly leaning in that direction

@Ronan M.  @Mark Ainley   I have sent you guys PM's and appreciate any help

@Brie Schmidt I would love to get the money this year because it helps in terms of reserve funds for a flip already in progress and DP for a flip i am looking to close on. However i can stand to keep it till next year. Only downside is the 720 a month cost to hold on to it.

I have a condo in the Irving park area that i am trying to sell. It is a 2bd/1bth condo that i bought over 2 years ago and lived in till about 3 months ago. I bought it for 77K and currently have it listed for 139K.

My quandary is this. I listed the condo about 3 months ago and got plenty of traction. I believe i had about 6 offers altogether on the property  (from 130K to 140K). I opened escrow with a buyer at 135K and 2.5 months later the deal fell through. The buyers financing failed quality control apparently and also the buyer delayed quite a bit. The issue is that i put the property back on the market and have not had much if any traction. Maybe 2 showings that were not interested. I believe part of it is due to the time of the year and my condo is suited more to first time home buyers (about 80% of showings were to first time couples)

I am trying to decide if i should take it off the market and put it back up come spring or to heavily discount the price and sell it faster in the fall/winter. I really want that cash to use for my flipping activities. Since i bought it for 77K and put in 8K i am all in for 85K. Selling it at a big discount around 120K is still good profit.

What would you do?

@Charlie Fitzgerald If i understand correctly you are saying that lender will make you freeze your credit line if accessing it would put you above the lenders DTI limits. Im my opinion this only applies if a lender has very strict overlays. I doubt it is a fannie guideline (i could be wrong though.

The reason i say this is because my last two conventional loans would not have gone through if this was the case. For both i was around 44% in terms of DTI. My outstanding unused lines of credit total over 150K (multiple cards). If those were counted in any way i would immediately be above the DTI level. And i was not required to freeze any lines. The only thing that counted was the approx 5K balance owed one of the cards.

Man its crazy how many people say dishwasher. 

Funny thing is if i was your buyer i would prefer the cabinet space. I have lived with a dishwasher for the last 10 years of my life and i can count on both hands the number of time i have used it. And usually its not even me but a guest. 

However based on the responses here i would definitely put in a dishwasher in my next rehab. :)

There is no one way to structure it and everybody on here can give you a separate unique way to do it. It all depends on what you and your friends goals are. 

Is he just trying to help you buy real estate or is he looking to partner long term and buy real estate himself also. If he is just trying to help you then you can negotiate a fair loan term and interest rate that you both agree on and that is it. If he wants long term partnership then you discuss how you want to handle it based on the fact that he is bringing 25% of the DP. One way would be to leave all the buildings revenue in a neutral separate bank account and then at the end of every month, quarter, year, etc? you disburse any amounts over what is to be left for reserve between the two of you.

These are just a couple of ways to do it.

Update:

I decided to continue and try to do the deal. I was able to convince one of my friends who has been attending meetups with me to partner up and split the financial costs 50/50 (and profits 50/50). That drastically lessens my burden and makes it not as much of a risk even though i make much less. However Fannie Mae is trying to renegotiate the purchase price of the deal so we will see what happens.

I did however learn a lot from this conundrum. It taught me to approach private investors and talk to them about what i do. I have someone else who is ready to bring 30-40k to partner with me on another deal. I am almost getting to the point where i have more money than deals and have yet to finish my first actual flip. :)

I am getting the vibe that taking action is the catalyst. Even without a flip under my belt, others seem to want to partner with me because of how much i have bought in the buy and hold space with my own money (not much compared to the pros on here). The fact that i have my own money in the deals and am not asking them to finance 100% and that i have an experienced construction partner seems to help also.

I just need to learn how to close private investors. I have another friend that was 80% there to loaning me private funds but he backed out at the last minute. He is too scared and wants to leave his money in the stock market. I need to learn how to overcome those objections. 

All in all its been a great learning experience.