Cash Flow Analysis Based On What Level of Financing?

6 Replies

I have searched a bit on the forums and might have overlooked it, but I would like some help. I believe this to be a simple question...

When looking at what your property will cash flow, how does everyone determine the basis of their principal mortgage payment?

For example:

1. 100% Financing?

2. 75% Financing?

That can really change a deal analysis and the cash per door. A deal might work if financed at 75% but might not work out when 100% financed.

I use the financing I'm going to get... In our case, 20% down, 15 yr amortization, repair costs borrowed as part of 80/20 note. Used to be 85% LTV but times change. We never go over 15 yrs because ultimately we want to be debt free.

I've had the same question before and I believe it comes down to the investors level of risk and experience. I was looking at properties and deciding whether I should do FHA financing with 3.5% down versus investor financing at 20% down and you can imagine that greatly affected the cash flow of the property.

One of the best pieces of advice I got was from a podcast, not sure which one. I believe it was @Brandon Turner  who mentioned that if you can still cash flow a property with 100% financing then you've got a great deal, unless you're running numbers wrong. It was mentioned in regards to wholesaling properties. 

For example, I was having trouble figuring out who to market a potential deal to because it cashed flow as a nice rental with x amount down but worked better in a fix and flip deal with y amount down. Well, if you manage to still have a cash flowing deal with all 100% down then you don't have to worry about who you're marketing to.

Of course you may not find many of those but I keep the 100% in the back of my head as a guide or suggestion. 

Thanks guys, I appreciate the responses--very helpful!

Sean, I downloaded a the Cash Flow Analyzer spreadsheet from BiggerPockets last year and have since modified the spreadsheet to help me better understand the financials of the property.  I have uploaded my modified version of this file but all the credit goes to http://www.chandler-property.com and http://www.BiggerPockets.com.  

Terms of use: use my modified version at your own risk!

http://beta.biggerpockets.com/files/user/MrMadMone...

Its not just the down payment but also the terms. A 30 year mortgage will have a different cash flow than a 15 year but will pay down faster. My personal goal is neutral cash flow with 20% down and 10 year financing.

Analyze using the terms you want and expect to be able to get. If you are looking to compare your cash flow to other investors cash flow this becomes a problem because there are some important variable thrown in there. Like Anish who wants to pay off the property in 10 years.

As far as 100% financing goes, you will only be able to do cash out refinances with four loans, so only your first 4 buy and holds (unless you get seller financing). If you can cash out 100% of your money and the property still cash flows over $100, you're doing pretty good.

I was doing three calculation. 80% financed traditional loan and pay cash for rehab, 80% financed renovation loan (rehab is financed), and 100% financed assuming a future cash out refinance. This helped me analyze my options, present and future.

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