Best Way to make a Tax Refund work for Me!

5 Replies

First time investors here! In preparation for applying for loans and financing, I am trying to work through how to best apply my tax refund to work for me. Basically I have narrowed down to, pay down our only vehicle payment so that it will be full paid off between March/April instead of in 18 months, OR keep it in savings as extra cash on hand for REI. I know this is a question for a lender, but love seeing the opinions from the vast amount of experience on BP so I thought I would throw it out into the open. My initial gut feeling is to get the vehicle paid off asap to have extra monthly cash flow to contribute to future reserves for REI. Paying off the truck will open up another $400 in cash flow a month allowing me to either save or double my monthly boat payment.

For amplifying info, our current debt is our home, one vehicle (another paid off), and a boat (yes, we bought a boat at 30 yrs old because we had the money and wanted to enjoy it the most amount of time possible while we knew we were going to be living in an area that we could). We also both have credit scores over 800.

Thanks for all input! Love seeing how people get creative here.

Originally posted by @Karl McGarvey :

First time investors here! In preparation for applying for loans and financing, I am trying to work through how to best apply my tax refund to work for me. Basically I have narrowed down to, pay down our only vehicle payment so that it will be full paid off between March/April instead of in 18 months, OR keep it in savings as extra cash on hand for REI. I know this is a question for a lender, but love seeing the opinions from the vast amount of experience on BP so I thought I would throw it out into the open. My initial gut feeling is to get the vehicle paid off asap to have extra monthly cash flow to contribute to future reserves for REI. Paying off the truck will open up another $400 in cash flow a month allowing me to either save or double my monthly boat payment.

For amplifying info, our current debt is our home, one vehicle (another paid off), and a boat (yes, we bought a boat at 30 yrs old because we had the money and wanted to enjoy it the most amount of time possible while we knew we were going to be living in an area that we could). We also both have credit scores over 800.

Thanks for all input! Love seeing how people get creative here.

It all depends on your DTI (Debt to Income) Ratio. Only a mortgage broker can answer your question because it really does depend on your specific financial picture. You want to ask them the question, "How much of a loan do we qualify for?" and "If we paid off our car loan, how much would we qualify for?". It also matters if you are going conventional, FHA or VA, have a down payment, how much of a down payment, how long you've been on the job, whether you are self employed or W2, etc.

 

@Account Closed Thanks for the reply. Our DTI is 22% and paying off the car brings us to 19%. In this case I think its mostly a personal call. Just like seeing if any one has anything creative, esp with the DTI not really being a big issue. If there is opportunity to turn the refund into extra assets that would outweigh the benefit of having a vehicle paid off I am always all ears! Haha.

Originally posted by @Karl McGarvey :

@Mike M. Thanks for the reply. Our DTI is 22% and paying off the car brings us to 19%. In this case I think its mostly a personal call. Just like seeing if any one has anything creative, esp with the DTI not really being a big issue. If there is opportunity to turn the refund into extra assets that would outweigh the benefit of having a vehicle paid off I am always all ears! Haha.

 Sure, here's one way:

https://www.biggerpockets.com/...

Account Closed intriguing strategy! Almost like you are playing wholesaler/bank all at the same time.

Originally posted by @Karl McGarvey :

@Mike M. intriguing strategy! Almost like you are playing wholesaler/bank all at the same time.

 I hadn't thought of it that way but it is very similar with some huge differences. Once a wholesaler completes the sale it's gone and he is taxed on the profit. I actually get ongoing cash flow, depreciation, principal pay down, tax write offs and I still own the property until the tenant buyer cashes me out, so I also get "back end" equity.