All Forum Posts by: Sean Kruger

If properties are in "war zones" or close do, does fixing up the units bring a more respectful group of tenants even the area is still garbage?

@Brent Coombs

My mistake, that was a late night typo. Good catch.

@Steve Vaughan

Thanks for your reply, that is an interesting take of the situation.  I should have mentioned the main reason for the refi is to get the property into a 30y fixed, the cash out is a might as well afterthought as the rate is essentially the same.  The current rate is slightly lower but not a 30yfixed, so we are paying more in interest to secure the low rate.

Hi all, I am curious to your thoughts on when to pay points or maybe take a credit for a higher rate.  I ask because we are in the process of a cash out refi on an investment property with closing costs of about $2400(I exclude prepaid interest and funds for an escrow account).  The options being no points at 4.375% or get a get a credit to cover the closing costs of $2400, but take a rate of 4.75%.  The loan will be $170k 30y fixed.

More precisely my question, is do you simply look at the cash flow difference between the loan, or the extra interest on an amortization schedule to figure out the break even.  I ask because everyone I seem to talk to says the cash flow method which would be about $38/m making the break even point 63 months.  However I was trying to explain that the first month interest amount was $620 vs $673 for the higher rate making the difference $53 making the break even about 45 months and this is a truer way to view the cost of points/credits.  Note, I do understand that the monthly interest being paid will be increased each month, but the difference between the two rates should be about for the same for a period of time.

So, am I missing something with my logic, or is the cash flow difference is easier to explain and most people just care about the money out of their pocket each month.

Thanks in advance, Sean from Arizona

I have been thinking the same thing and would like to hear from others.  I think a lot of the question depends on what state you live in and how much you owe on your primary residence.  I saw this because in Arizona we have low low property taxes(less than 1% of loan value) and relatively low state income taxes.  In AZ if you had a mortgage with less than a $200k balance; the interest, property taxes, and state income tax could be lower than the standard deduction(2015 is $12,600), assuming you are married- unless you give A LOT of money to charity.  In this case it's my thought that having a mortgage on your primary residence gives you a $0 tax break because you could just take the standard deduction.  On the other hand the interest on a investment property would go against the income down to the last penny of interest paid on the mortgage.  With my logic, with the right circumstances it would complete sense to payoff the mortgage on your primary residence.  However, by that same logic, it never really makes sense to pay off the rental.

I am hoping someone can chime in on my thoughts and fact check what I am saying.  Especially as I have been really thinking about paying down the mortgage on our primary residence.

Sean

i'm curious as well, looking for east valley.

Hi, just curious is this Holiday Park or Imperial Manor? I ask because your numbers and asking price seem to match those places on the MLS. The units cost A LOT for being Scottsdale, but the rents are low cause the dumpy area.

Also, buy in hold in Phoenix Metro is tough to make cash flow without a huge down payment.  its definitely for someone with a long term time horizon unless you bought for cheap whether that be through a good deal or the right time.  

Sean

@Alex Applebee

Excellent work on the flip and this thread!  I'd be happy to read your next post as flipping ain't easy, or I should say flipping quality ain't easy.  I have seen too many home depot scratch and dent flips that make me smack my head, but they still can make money.  I'd be very interested in knowing your contact for the pavers.  Also, any other good contractors and bad ones; always good to add to the Rolodex and the do not call list!  The key is definitely having good quality people you can trust to do work at a fair price.  

Finally, I think T Swift said it best; "And the haters gonna hate, hate, hate, hate, hate"

thanks for the prompt response, let me change the example to buying a $200k property only, is my tax consequences now only on the $100k capital gain and then avoiding $10k on taxes until another day.