Maximize cash flow or reduce interest costs

[gsicilia]

Need advice on best way to proceed.

I am investing in single dwelling properties and I was wondering if it made more sense to increase the amortization to the longest term possible and increase cash flow, or decrease amortization to the smallest possible to be cash flow neutral and reduce the interest paid on the property over time? I also have a good paying job which puts me in a high marginal tax bracket and do not want to pay taxes if at all possible.

Thx for your input

 

[kboughen]

QUOTE (gsicilia @ Jul 4 2009, 02:31 AM) the longest term possible and increase cash flow, or decrease amortization to the smallest possible to be cash flow neutral
If you choose the correct mortgage product, you can set the mortgage up with the longest possible amortization and use the pre-payment privileges to create the effective amortization you desire. This way you have the flexibility to make the lower payment based on the longer amortization if you chose to. This strategy will also maximize your qualification ratios for future purchases.

 

[Thomas Beyer]

QUOTE (gsicilia @ Jul 4 2009, 12:31 AM) Need advice on best way to proceed.

I am investing in single dwelling properties and I was wondering if it made more sense to increase the amortization to the longest term possible and increase cash flow, or decrease amortization to the smallest possible to be cash flow neutral and reduce the interest paid on the property over time? I also have a good paying job which puts me in a high marginal tax bracket and do not want to pay taxes if at all possible.

Thx for your input
Assuming you wish to acquire more properties over time .. higher cash-flow is better .. you can usually decide to pay a lump-sum once in a while if you wish !

 

[Nir]

Re: amortization: Yes, Maximize amortization as explained
Re: tax: interest is tax deductible - the higher your interest the higher your deductible expense (goes together with higher amortization!). however, that is not the reason we maximize amortization.
Re paying principal faster than minimum monthly: it also depends on something you did not provide - your current LTV% (loan to value). this together with your target level of risk will help decide regarding your payments.