All Forum Posts by: Zachary C.

@Thomas S. this is a great perspective and I get it. I want my money working too. But this is a theoretical or academic discussion of payoff efficiency just for the sake of deepening understanding. It is a valid strategy under different circumstances, different risk tolerance levels, and also quite important when the debt is costing you money and not producing income (bad debt or what have you) like when the debt is on a car, a credit card, student loan, etc. and you are trying to free up cash flow in the budget so you can start investing sooner in the kind of stuff you were just talking about. The scenario never said these loans were on rental properties for that reason. But I still love the perspective so thanks for throwing it in there. Given all that how would you approach this pay off problem?

@Chris Coleman, that sounds like another version of the Cash Flow Efficiency or Balance/Minimum Payment Ratio (from above); of course since the division side is reversed yours would be highest number first and in this formula the lowest number would come first but either way the resulting order should come out the same. It's definitely an interesting approach to the problem. 

I think, if this was something that I was considering doing, I would look at this approach and the snow ball method to figure out my course. I would do that in the interest of secondary factors (real life) and throw away the savings and efficiency of the avalanche method. In the end I think for real life efficiency freeing up cash flow outweighs the interest savings in most cases.

@Frankie Woods, That seems to be the answer without exception. It's rare to find a rule without exception, which makes it that more interesting to me. 

@Adrienne Medina,

I switched from a W2 position to a 1099 self-employed position (staying within the same corporate conglomerate) because it was a really good pay bump. When I went to explore getting a mortgage so I could get my first rental I realized that I had started the entire timeline over to get approved, thanks to the recession and Dodd Frank (I guess). I had to wait 2 years before I could get a traditional mortgage, regardless of how much I made and how small of a loan I could work with (I think I even offered to put something ridiculous like 80% down). However, I'm not that patient so I went and found a non-traditional mortgage. I guess you could call it a business mortgage, but through the business side of the bank with the portfolio loans (the ones they keep and do not sell) I was able to get less favorable mortgages that still allowed my deals to work. The interest rates are a little higher than whatever a traditional rate at the time will be, and the amortization periods are shorter (usually 15 or 20 yr), and they "balloon" at the 5 yr mark; however, these particular loans only demand the balloon if you are making late or missing payment, if you stay good they renew but the bank uses it as a chance to adjust the rate. While I was supposed to be waiting 2 years I bought 4 houses with these particular loans through my company. Oh, they also require 15% (instead of the traditional 20%) down without PMI.

@Dave DeMarinis we use Propertyware.

Well, I'm sure it depends on some of the fine print but I don't see how it will be good in the long run. Anti-landlord = increased risk, increased risk = increased return needed, rent control =/ increased return? Again, depends on the fine print and how they run it but if the numbers don't work, or get tighter with increased risk, who would invest their money there?

@Justin Butterfield,

No matter what you are going to find pros and cons in each system. Some might have stronger abilities in adjusting reports while other might be stronger in accounting. If you're just getting started with your own portfolio or a small portfolio you might be able to try the free platforms and see what features turn out to be more important. Then when you scale up to cost platforms you know key areas the product needs to be strong in for your situation. Also, know that switching platforms on an active portfolio is not a super pleasant process and if you find a free one you like that has the option of scaling up for a fee I would strongly consider that when looking at the other fee based programs.

Best,

@Virginia Jones,

@Jim Goebel makes good points to consider in weighing your decision. @Scott Jensen is right about the value/loan proposition, you will have to hunt around to find someone to pull equity out and when you find them bumping down the LTV number might be hard as you hit their lower limit. You also need to consider what that does to your cash flow on the property, you don't want it too tight if you are trying to avoid coming out of pocket.

However you have your emergency fund running you don't want any of the scenarios to bring that number down below your tolerance level. As long as that it is satisfied you should be pretty flexible. You said you could save 4k monthly which is half your need, does that mean your disposable amount is 2k? Either way that is a nice chunk and you could focus on the LOC and move that down pretty quick without adding risk anywhere else, except possible opportunity cost if another investment popped up during that period. You could balance between and stash half the monthly surplus in an opportunity/acquisition fund and the other half at the LOC debt, or any number of other things.

If you used the brokerage account would you build it back up? If so I don't think I would bother, I might consider that if I was unsatisfied with them and planned on closing it out permanently thought.

Whatever you do make sure you consider the impact/risk any option will have on the various areas and don't go outside your financial comfort zone, stay as conservative as you need.

Best,

@Kenneth White I agree with @Joel Rosenthal, every lender can be a little different but there is almost always a way forward. I personally like to do things on my own while they are new to me and I gain my experience and then slowly move forward with investors, where their contributions start smaller on the projects % scale in the beginning. When I move like this I improve my ability to satisfy the arrangement with the investors, take on the estimation errors I might have made (while still gaining experience), and finish with happy investors that will be ready to get into the next deal a little more.