Updated almost 3 years ago on . Most recent reply
Take over existing low interest loan or get new financing?
I have an opportunity to do a land contract for single family. With the land contract, I would keep their 2.99% interest payment of $1230/month (including taxes & insurance), give them $ down, and it would be paid off in 9 years. Or...get my own new financing at 6.??% for 20 years.
My payment would be much lower, say roughly $850, which will generate more monthly cash flow, but I'm adding 12 years of payments.
Rents in the area are between $850 and $1500/mo for a 3/2. I'd like some opinions on which option would be better and why...
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If you choose to go with the land contract, you will have a significant amount of negative carry. I would only do that if you have a large amount of reserves, enough to cover this property for a few years and take the hit of any loss income (e.g. job) since the Fed is intent on creating a recession soon.
Whether you intend to hold this property for a few years or forever, I wouldn't get the 20-year note. I'd get a 30 year note. Generally, the higher leverage you can maintain, particularly on a cash-flowing asset, the higher your overall returns. Equity in a property makes everyone feel good but equity doesn't produce profit, the asset does.