OfflineHello,
I successfully purchase my first home in 2011 at a 3.5% down payment.
I am thinking of getting involved in my next property but wanted to see if it is worth getting a loan to take for my next investment.
Since it is now considered a "investment" property, I will need a 20% down payment.
The area will be in new york city, credit rating is great and no debt.
What do you guys think?
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I have also found banks that gave a loan on a second house that I had an address to. Not sure if they will tell you this but it has been done and you just need to ask the right questions and let THEM talk. Sometimes you will get a CREATIVE loan officer that will make happen what you want to do. I have seen it and done it by telling them u want an investment property but want it with a small skin in the game and HOW can we make this happen. It will take you calling SEVERAL banks and asking how and what they can do. While you are calling them you may as well be interviewing them for no season refi'$ also along with a loan or line of credit.
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Using bank financing for investment properties is a really good move. Let me show you why.
You have a property worth $100,000 which you paid cash for it and it rents for $1,500 per month. We will set aside 50% for vacancy and all expenses. This gives you a net profit of $9,000 a year or 9% cash on cash ($9,000 / $100,000).
Now, take that property and refinance it at 20% equity. You now have a $100K property which you paid $20k (not including loan fees which for the sake of simplicity we will leave out). Let us create a 30 year mortgage at 4.5%. Your monthly payment is $405. Your cash in pocket at the end of the year is $4,140. You now have a cash on cash return of 20.7% ($4,140/ $20,000).
Take the $80,000 you pulled out of Property #1 and invest it in 4 more $100,000 homes under the same cash flow scenario. Now you own 5 properties with the same $100,000 investment. Your annual cash before tax now totals $20,700 ($4,140 x 5 properties) and you are getting a 20.7% cash on cash AND now have 5 properties appreciating.
You have to love leverage!
Hi Simon,
Here is the breakdown on my first home purchase that I am not living in (rent both floors out right now):
- 2 Family Home purchase of $280,000 at a 3.5% down payment.
- Current outstanding mortgage balance = $253,000
- I generate roughly $800 profit/rental income from the home.
- Current appraised value = $415,000
With all that information, do you think it is still worth refinancing, if so, please help me paint a vivid picture.
Thanks in advance for your help!
good info thanks for that makes more educated Simon Jay & thx J for posting original post.
Tony
Go faster do more! GFDM!