Germany and Jacksonville, FL · Member since 2018 · 108 posts · 18 votes
Hello. I plan to buy my first rental and received a pre-approval from a mortgage broker for a loan of 6.068%. I understand that the interest rate is higher when you buy an investment property, but I have really good credit so not sure why the interest rate is so high. This is affecting me from getting good cash flow deals. Every deal that I analyze gives me a negative cash flow and it's due to the high P&I and low monthly gross rent. Does anybody have any suggestions? Thank you.
@Chayson D., thank you for the info. Per my loan worksheet, the Interest Rate is 5.75% and the Annual Percentage Rate is 6.068. Yes, I got approved for a $150 loan. If I ask for a higher loan, then I will need a higher down payment. If I pay for points or have a high interest rate, that's still money coming out of my pocket. The Lender is also charging me a 5.3% of the loan amount for the Closing Cost. Does 5.3% seem normal or high?
Dolly
5.75 is a pretty good rate for a non-owner occupied property at that loan size.
APR and interest rate are two different things. APR has other costs involved and interest rate is just that.
Asking if 5.3% closing costs is too high is also a hard one to answer. Are you including escrows in there? Is it an estimate or do you know what the title company is going to charge? Are prepaids in there as well. Too many variables to tell. If you're asking if if 5K on a 100K loan is high, I would say no if escrows, prepaids and title charges are in there.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
7y
@Dolly La Salle I have been doing this for 15 years have a pile of cash and good credit. I doubt I could get a loan for my LLC at as low as 6%. Like @Stephanie P. that is a decent rate for non owner occupied.
Personally I would jump at 6%. Historically 6% is still very cheap. It has been obvious for years we were due for rates to increase. 1% on the rate doesn't make that much difference in your payment.
Also if rates go up it will hold prices in check. It shouldn't stop you from being able to do deals. Good luck.
Germany and Jacksonville, FL · Member since 2018 · 108 posts · 18 votes
7y
@Julie Phan, congrats on your investment property. Yes, I am using a commercial lender. I was thinking about getting an estimate with the "Better Mortgage" company that is referred by Bigger Pockets. Do you think a commercial lender is better? Also, if you paid $1800 to lower your interest rate, isn't that the same thing as having a higher interest rate because in the end of both situations, you will be paying out of your pocket?
Germany and Jacksonville, FL · Member since 2018 · 108 posts · 18 votes
7y
@Ned Carey thank you for your feedback. Yes, I'm starting to see that 6% is what we should all be expecting nowadays. Do you think it is wise to pay for points to lower your interest rate?
Germany and Jacksonville, FL · Member since 2018 · 108 posts · 18 votes
7y
@Sam Shueh Thank you for your feedback. Do you prefer paying 25% down even if 20% is required? Perhaps, that extra 5% could be used to purchase another property.
@Chris Mason, thank you for the information. It just sucks that now when I decided to get into REI, is when the interest rates are getting too high. I guess it's a reality that investors are going to have to accept.
Market is softening. You're not going to be up against 20 other offers for the next few months, unless the property was priced too low. Being a little less in debt might be a wash with the rate, from a cashflow perspective.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
7y
@Dolly La Salle honestly I don't know. You would have to run the math. The longer you plan to hold the property the more advantageous buying down the rate will be.
One thing to consider is the risk. Higher loan to value means less cash flow to cover the loan if something goes bad. I would put 20% down and use the 5% saved as cash reserves for when problems arise. There is not one right answer for everyone.
@Stephanie Potter, thank you for the information. I've been analyzing all deals using the APR 6.068 so I've been doing it wrong. However, from what most people in this forum have been saying, 6% or above is starting to look like what I will be getting in the end.
As for the estimated closing cost, my pre approval worksheet states:
Processing Fees, Underwriting Fees, Your Credit or Points, Appraisal, Credit Report, AMC Fee, Lender's Title Insurance, Notary Fees, Title Search Abstract, Recording Fees, Transfer Taxes, and State Tax/Stamps.
I do not see anywhere in the worksheet that it states Escrow.
Hey Dolly
Not necessarily wrong if you know what goes into the APR and you're analyzing it apples to apples. Analyzing an interest rate vs APR is not an equal comparison.
Here's a link to what typically goes into APR. Taxes aren't usually part of the equation.
Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
7y
Dolly - I like to use actual dollar figures for closing cost comparison because then the actual figures are being laid on the table ..using percentages like "5.3% of the loan amount for the Closing Cost" can get confusing if loan amount isn't specified …...eg … 5.3% of a 115K loan = $6095 …...this is high for closing costs unless it includes loans fee and also if it includes prepaids int/ taxes and ins …. 5.3% of a different loan amount would be a completely different figure
Germany and Jacksonville, FL · Member since 2018 · 108 posts · 18 votes
7y
@Dave Skow Thank you for you response. So, when you are analyzing a deal and asked how the dollar amount of the closing cost, how do you determine dollar amount?
Rental Property Investor · Norfolk, VA · Member since 2016 · 90 posts · 26 votes
7y
Thanks for all the feedback. Just got in a contract with another property. This one is $152,500 SFR and I'm putting 20% down. Had a major bank offer me 5.875% interest purchasing 1 point. Also had a Credit Union offer 6.15% interest with no points, closing in 15 days (I've used them before). Currently leaning towards a broker I'm in communication with. He's offering to lock 6% with no points, closing in 30 days.