Guys,
I would like to get your ideas on investment property loan. Do you guys recommend to get 30 yrs or 15 yrs of loan with 20% down payment for property like 160-190K.
What kind of calculation to consider to evaluate loan yrs.
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
13y
Originally posted by Pete Tam:
Little curious to know, if you are planning to invest in hold and rent kind of property, isn't it good to get 15 yrs of loan so you don't pay too much interest and free your property by this time.
That is one way to look at it. The other is that with the 30 year yes you pay more interest but have more CF today. that CF allows you to actually build up to more properties which also CF so you'll end up coming out ahead.
Also nothing is stopping you from paying down a 30 year loan in 15 years. So you can pay down the property faster if you choose later, but if you have a 15 you can't just pay less in any month so that keeps you free-er to adjust how you use that CF.
Finally a dollar today is worth more than a dollar next year (inflation). So if you borrow at 5% and are making 10% you are best served extending that payment out as far as possible so you can keep as much of the more valuable dollars today so you can reinvest that money.
Little curious to know, if you are planning to invest in hold and rent kind of property, isn't it good to get 15 yrs of loan so you don't pay too much interest and free your property by this time... Another point here is, you dont have to pay anything out of pocket.. Mortgage will be paid from your rent but yeah wont make any money...
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
13y
Originally posted by Pete Tam:
Little curious to know, if you are planning to invest in hold and rent kind of property, isn't it good to get 15 yrs of loan so you don't pay too much interest and free your property by this time.
That is one way to look at it. The other is that with the 30 year yes you pay more interest but have more CF today. that CF allows you to actually build up to more properties which also CF so you'll end up coming out ahead.
Also nothing is stopping you from paying down a 30 year loan in 15 years. So you can pay down the property faster if you choose later, but if you have a 15 you can't just pay less in any month so that keeps you free-er to adjust how you use that CF.
Finally a dollar today is worth more than a dollar next year (inflation). So if you borrow at 5% and are making 10% you are best served extending that payment out as far as possible so you can keep as much of the more valuable dollars today so you can reinvest that money.
Investor · Northeast, OH · Member since 2012 · 239 posts · 106 votes
13y
As Matt said, if your strategy is to use CF to purchase additional properties (my strategy), then I want to minimize monthly mortgage payments and maximize cashflow.
New York City, NY · Member since 2013 · 17 posts · 0 votes
13y
Originally posted by Matt Devincenzo:
Originally posted by Pete Tam:
Little curious to know, if you are planning to invest in hold and rent kind of property, isn't it good to get 15 yrs of loan so you don't pay too much interest and free your property by this time.
That is one way to look at it. The other is that with the 30 year yes you pay more interest but have more CF today. that CF allows you to actually build up to more properties which also CF so you'll end up coming out ahead.
Also nothing is stopping you from paying down a 30 year loan in 15 years. So you can pay down the property faster if you choose later, but if you have a 15 you can't just pay less in any month so that keeps you free-er to adjust how you use that CF.
Finally a dollar today is worth more than a dollar next year (inflation). So if you borrow at 5% and are making 10% you are best served extending that payment out as far as possible so you can keep as much of the more valuable dollars today so you can reinvest that money.
Thanks for such valuable explaination,initially I was thinking it's all about Cash flow,but its more over Cash flow .Thansk for such a nice post.
1. Do you guys know where I can calculate approx appraisal of the property!
2. I'm using http://www.finestexpert.com/ site to see the cashflow of the property. After putting all figures, I am getting cash flow in negative but considering 30yrs monthly mortgage and current renting market, I can get about $300-$350 extra everything months.
What do you guys recommend considering estimated negative cashflow... Is it worth investing in this kind of property or stay away from it as a first time investor.
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
13y
I personally don't do Neg cash flow. Those that do are banking on appreciation usually. You have to have the ability to support the asset until you can sell for your possible profit later.
As far as appraisal do a search up in the top right corner for "comps" "pulling comps" "valuing a property" ect there are a lot of threads that go into the mechanics of valuing a property.
Ben Hughes After reading your post, I feel like I should back out from my interested property. Getting at $300/month cash flow is a huge challenge for this property at least...
If I do very basic math, I can see I am making profit but to look at the cash flow, I am adding other expenses such as - Property tax, monthly association fees, property unexpected expenses, vacancy...
I'm not sure these are the right kind of things to consider to get the approx value..
If you have any other suggestion, pls let me know.
Real Estate Agent · Burbank, CA · Member since 2012 · 271 posts · 79 votes
13y
I'm buying more for cash on cash return than cash flow. How do you calculate cash flow?
$300/mo cash flow from 10k invested is much better than $300/mo from 100k invested.
Ciprian L.
I am using http://www.finestexpert.com/ to find out cashflow. I am calculating following cost :
Investment Information:
=================
Purchase price, closing cost, down payment, property rehab cost
Real Estate Agent · Burbank, CA · Member since 2012 · 271 posts · 79 votes
13y
I don't use a tool. I just calculate CF with 8% for vacancy, 8% for maintenance and 8-10% for management.
Some investors get different numbers because they use different percentages, it is hard to know exactly what $300/mo means.
For some new investors the difference between monthly rent and PITI is the CF.
That's why I asked how you calculate it.
I am looking at the current renting market where I like the property, I can make about $300-$350 extra after my 30 yrs mortgage monthly payment...I am going to calculate the way you mentioned and see what I am getting.
Ciprian L.
Considering your give 8% for Vacancy and Maintenance and 10% for management, I am getting following figures:
I also calculated HOA, loan interest rate, approx lower side of rental income
Before Tax (Year 1)
Cash Flow -$13,085
Cash on Cash Return -32.71%
After Tax (Year 1)
Cash Flow -$13,085
Cash on Cash Return -32.71%
Real Estate Agent · Burbank, CA · Member since 2012 · 271 posts · 79 votes
13y
From $300/mo CF you get to -$1090/mo CF just by adding vacancy, maintenance and management?
Anyway, I wouldn't invest in a property that has negative CF.
Gross Scheduled Income /mo $15,600
Vacancy % -$1,248
Other Income /mo $0
Effective Scheduled Income $14,352
Expenses
Association Dues (HOA) /mo $2,280
Maintenance % $12,800
Management % $1,435
Total Operating Expenses $20,055
Net Operating Income -$5,703
Returns on Investment
Before Tax (Year 1)
Cash Flow -$13,085
Cash on Cash Return -32.71%
After Tax (Year 1)
Cash Flow -$13,085
Cash on Cash Return -32.71%
Thanks a lot for your great suggestion for someone like me who is beginner in real estate investment business.
Silver Spring, MD · Member since 2013 · 2 posts · 0 votes
13y
As a first time investor I definitely would not pursue a property that did not have at least SOME cash flow. You are still learning the ropes, and may have expenses that you do not even realize yet.
Kristi A. That's what I realized after getting few responses from Ciprian L.
Thanks for your suggestion too..
Is there any good tool to find out right kind of cash flow!