Have you ever had this happen? Two people are arguing and both are gesturing and ferverently trying to make the other side understand their point. They are both quite emotional and are frustrated that the other doesn’t get it. Being a passive observer, you suddenly realize they are both arguing the same point of view, they are just saying it differently.

Kinda like that, huh?

Ned

Not one iota of this post has a thing to do with receiving income that includes principal. That’s another topic form a completely different chapter. Cash flow is cash flow and though your point about interest vs principal deductions is, of course accurate. it simply doesn’t apply in my post. We are talkin’ about different things.

This is NO principal in cash flow from income properties, only from payments made TO you from a note. I’m gettin’ a headache here.

Thanks again.

Hmmm, were not connecting, let me try again.
Even with an exchange the money that goes toward principal IS taxable. It is taxable as passive income, it is not taxable as part of your gain when you sell. Let me give you a very simplified example.

You have rental income of $1000 a month, Lets say your only expenses are A $1000 a month mortgage payment. (yes, I know that’s not realistic but I’m trying to keep it simple.) IF the mortgage payment is $950 in interest and $50 towards principal, you would have $50 a month in taxable income. The interest is deductible, the principal amount is not.

Now I greatly simplified things and in the real world depreciation would likely cover the principal amount and you would have other expenses. However it is important to understand that principal payments are taxable. A large deal could be structured so that you have taxable income, without real income to cover it.(bummer)

> You said you liked having cash flow, but had never taken any money out of your properties.

My properties are held in an LLC. The rents and other income are reinvested in other assets to grow the company. I haven’t taken any money out of the company. (although I have had to pay taxes on that money).

Shorter amortization schedules lend themselves to my goal which is build equity and a solid balance sheet. So you point is well taken.

The way I wrote that could of been better worded.

The ‘cash flow’ in that sentence wasn’t cash flow literally. I would’ve been IF the amort schedule had indeed been 30 instead of 20 years.

When I said “…it’s not subject to taxation” there should have been an explanatory parenthesis there, which would’ve said, “As long as the investor deferred his taxes instead of selling and PAYING cap gain taxes.”

With the exchange the increased equity produced by the shorter term amort schedule would not have been subject to taxation. I wrote that paragraph poorly. Good catch.

Also, remember the premise of the post: The investor really didn’t have a choice on which amort schedule was to be used. I was illustrating why they shouldn’t walk away.

I didn’t understand one comment you made. You said you liked having cash flow, but had never taken any money out of your properties. I’m not sure I get the gist of what you’re saying there.

Don’t be a stranger, OK?

One correction, you said:
>And, since your cash flow is now going toward principal pay down, it’s not subject to taxation.

Actually that is taxable income. You only deduct the interest portion of your mortgage payment, The part that goes to principal is taxable

His personal opinion of the guy, based upon his own first hand observations is that Amando’s TV persona is nothing like his real world personality. I believe him. Like you though, I don’t think his on air impression serves him well.

I’ve learned that those who are already successful seem to share their knowledge freely and charge where appropriate if at all.

There was a Q&A session in which I asked him if he would explain the difference between the various loan rates and terms and their impacts on the investor.

After doing a few nonsensical laps, he said the answer would take too long and was ‘too sophisticated’ for this seminar. You’d think those guys would’ve gone the way of cars without seat belts, but they’re still not only around, but flourishing.