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.
Gross income 15,600/a year.. HOA fee is $190.00 per month.
$12,800 maintenance fee was calculated based on the real estate value. I put the real estate value $160K with 30 yrs loan, interest rate about 4.5%
Real Estate Agent · Burbank, CA · Member since 2012 · 271 posts · 79 votes
13y
The maintenance is 8%/mo of the monthly rent.
Let me give you an example:
For $1,000/mo rent
$80/mo (maintenance), $80/mo (vacancy), $100/mo (management)
If your PITI is 600/mo, your CF is 1000-80-80-100-600= $140/mo.
If you have HOA fee of $100/mo then your CF is $40.
I personally don't like HOA fees, you never know how high they can go.
You can also use the 50% rule, is easier to calculate
From $1000/mo rent, $500 (50% - are the expenses, vacancy, management, taxes, insurance), from the other $500 you have to take out the PI and the rest is the CF. You can search for the 50% rule here in the forum, you'll find a lot of topics.
In an area with high property taxes I don't think is the best way to calculate your CF using 50% rule, I saw the monthly taxes as high as 30% of the monthly rent.
Ciprian L. I learned a lot from you today. I was doing wrong calculation and forcing myself to not to proceed with the property. After calculating all estimated expenses and hoping to get approx rent, I should be able to make very little money.. At least not negative. or the worst situation, should be able to even out.
Real Estate Agent · Burbank, CA · Member since 2012 · 271 posts · 79 votes
13y
I'm glad that I could help you.
You don't have to rush into a deal that doesn't look good, there are a lot of houses to chose from.
Good luck with your investing.
@Katherine Harper I understand from rewards point of view but less interest rate? Most of the credit card interest rates are higher than RE. Some Creditcard companies give you good rate for first 6 months but after that rates are skyrockets...