Real Estate Broker · Sarasota, FL · Member since 2020 · 39 posts · 8 votes
Curious what you all would do. In contract on a duplex investment property. (it is too close in proximity to primary to ever qualify for a 2nd home and is currently rented) Here are the financing options, all 30 year fixed.
1. 30% down at 3.25 % no points
2. 20 % down @ 4.5% ; 5 yr prepay; 2 points
3. 20% down 5% 2 points
The Cash on Cash is very similar @ 11% for option 1 and 10% for option 2. As well as equity payback period @ 9 yrs for option 1 and 9.42 for option 2. It is a difference of $20,880 over 5 years (length of projected hold time) in interest or an extra 34,500 out of pocket now. My gut tells me that I can do better by reinvesting the $34,500 into another property and taking the lower down payment option but what if we end up holding the property past 5 years. Also what are feelings on a 5 yr prepayment penalty? being as I underwrote the deal as a 5 yr hold it didn't concern me terribly but it would mean not being able to refi any cash out. Option 3 is slightly higher interest rate but we could refi the property in under 5 years. Both leases expire this year and are under market so there is growth in the property.
Thanks for reading! Love to hear all of your thoughts!
Curious what you all would do. In contract on a duplex investment property. (it is too close in proximity to primary to ever qualify for a 2nd home and is currently rented) Here are the financing options, all 30 year fixed.
1. 30% down at 3.25 % no points
2. 20 % down @ 4.5% ; 5 yr prepay; 2 points
3. 20% down 5% 2 points
The Cash on Cash is very similar @ 11% for option 1 and 10% for option 2. As well as equity payback period @ 9 yrs for option 1 and 9.42 for option 2. It is a difference of $20,880 over 5 years (length of projected hold time) in interest or an extra 34,500 out of pocket now. My gut tells me that I can do better by reinvesting the $34,500 into another property and taking the lower down payment option but what if we end up holding the property past 5 years. Also what are feelings on a 5 yr prepayment penalty? being as I underwrote the deal as a 5 yr hold it didn't concern me terribly but it would mean not being able to refi any cash out. Option 3 is slightly higher interest rate but we could refi the property in under 5 years. Both leases expire this year and are under market so there is growth in the property.
Thanks for reading! Love to hear all of your thoughts!
1. Never take a loan with a prepay. 2. If in doubt, reread point 1.
The rest of the question is: "What do you think the housing market will do?" If you believe there will be future buying opportunities, pick the one that leaves you with the most cash so you can buy another property when the time comes.
Real Estate Broker · Sarasota, FL · Member since 2020 · 39 posts · 8 votes
5y
Thanks @Account Closed. #1 noted! Ideally I would like 25% with no points and at 4%. I have only 5% debt and plenty of funds. I would think there should be better options out there but haven’t gotten traditional financing on multi fam in many years.