BRRRR: Calculating Mortgage Payment

[Daniel Mendez]

Good afternoon BP,

So i am looking to purchase my first investment property at the end of the year.

I had a question in regards to estimating the mortgage for the investment property.

When calculating on how much cash flow will be do I estimate the mortgage payment to be at what the house is being sold for? Or the ARV of the house?

For example, say I purchase an 80,000 home. The mortgage will be say $800. Rent around the area would run for $1,000 hypothetically speaking. Once I repair the house it is now worth $140,000. I refinance the loan to $140,000. Now my mortgage payment is $1,200. Well now my cash flow will be in the negative. Am I right?

[J Scott]

Originally posted by @Daniel Mendez:

@Adam Gollatz

So just to make sure before purchasing a property I have to make sure that the average rent is high enough that it will fall under what I am estimating to be the new mortgage payment once I have repaired the house right?

No, if you want positive cash flow, you need the mortgage payment to be MUCH less than the rent amount.  Remember, out of the rent, you will lose money to:

- Taxes

- Insurance

- Maintenance

- Property Management

- Turnover

- Utilities

- Capital Expenses

- Etc...

You need your mortgage payment to be less than the rent minus those items.

Good rule of thumb:  Divide the rent in half...the mortgage needs to be less than that amount for you to get cash flow.

Here's a primer on analyzing buy-and-hold deals.  Read it as many times as you need to to understand it:

https://www.biggerpockets.com/renewsblog/2010/06/3...