I suck at numbers, so I made up some for a hypothetical subject-to deal to sharpen up. Can you experienced investors please critique my work? My hypothetical plan is to take over the loan> get a tenant in> cashflow
Sellers loan terms
- P.P. $200,000
- Loan Amount $180,000 (20% DP)
- 5% interest for 30 years.
- Current Market Value $200,000
- Tax Assessed Value $174,390
- Tax Rate 2.3%
- Current Market Rents $1500
Seller made first 5 years of payments (The amount paid off in these 5 years shouldn't factor into my cash flow calculations, correct?)
P&I - $966 Monthly
Taxes - $334.24
Insurance - $80 (I've read to figure $35 for every $100,000?)
$966 + 334.24 + $80 = $1380.24 (PITI) Monthly
Market Rent $1500 (-) Monthly Mortgage $1380.24 = $119.76 (potential cash flow) not including vacancy factor, repairs, capex, hoa fees, additional flood insurance.
Verdict: NO DEAL
You are unable to accurately determine your cash flow and monthly payments based on this information. If you are assuming a loan and not refinancing then the monthly payment will be whatever the current owner is paying, which is unknown in this situation without knowing their purchase price and financing terms. Your calculations are correct based on a PP of $200,000 with a 10% down payment to make $180,000 and getting new financing at that amount. A 20% down payment would make the mortgaged amount $160,000 and your monthly cash flow would increase by about $108. But I think you're right in that this property does not perform well, especially after factoring in all your additional costs.
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