Investment Mortgage Loan Question: Cashflow is everything?
I am buying a duplex and am trying to decide on financing. I have narrowed my choices down to two companies who are still accepting 10% on investment 2-unit properties. I would similar to to know which one to select and reasons for your opinions:
Option #1: 90/10 loan near 1.0 pts (a) 6.875% on a 30 year fixed conventional; plus PMI monthly payments of ~$840.00
Option #2: 80/10/10 loan with 0 pts (a) 7.0% on the 1st and 9.14% on the 2nd, both 30 year fixed rates; no PMI, monthly payments of ~$778.00.
With option #2 my cashflow will unequivocally be better and that is what I am trying to maximize. I know I am paying more in the long run but I know I can refinance surrounded by the future, as I am already buying this property at a 75-80% discount.
Cashflow has to be a big factor when looking at loans, however, next to a good rate of 6.875% on the other, I just want to build sure I'm not overlooking anything, taking the 80/10/10 over the 90/10.
Please let me know your thoughts. Thanks!
Answers:
Something isn't closing properly on your math. Your loan for the 90% of the purchase price in Option #1 is at 6.875%. That part of the pack is ok, but on the second loan with 80% at 7% and 10% at 9.14%, the blended interest rate on that package is 7.24%. Your complex interest rate option has the lower payoff which doesn't add up with the statement that the both loans on the second likelihood are 30 year fixed.
The rates may be fixed for that long, but the 10% loan is likely an interest only where on earth the principal isn't repaid. IF you are ok with that, go ahead, of late make the realization that these two packages are not an apples-to-apples comparison.
good luck!
ps - the team game for rental properties is almost always cash flow
EDIT - If you can find a lender predisposed to do the 90/10 and let you avoid PMI, then it seem like that is your best bet. Cash flow is king.
Both loans are attractive. Neither is a clear vanquisher. Most rental properties are not profitable unless you put 30% down payment. That has be true for most of the last 40 years. No one ever has that much money, so everyone struggles to engender the best choice from limited options. Flip a coin.
I guess i'd pick the 90/10.
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I'm getting an FHA loan which includes a 3.5% down payment. Do I still have to reward mortgage insurance or will that be covered by FHA? The mortgage insurance will be factored into your monthly mortgage payment. Yes you...
Option #1: 90/10 loan near 1.0 pts (a) 6.875% on a 30 year fixed conventional; plus PMI monthly payments of ~$840.00
Option #2: 80/10/10 loan with 0 pts (a) 7.0% on the 1st and 9.14% on the 2nd, both 30 year fixed rates; no PMI, monthly payments of ~$778.00.
With option #2 my cashflow will unequivocally be better and that is what I am trying to maximize. I know I am paying more in the long run but I know I can refinance surrounded by the future, as I am already buying this property at a 75-80% discount.
Cashflow has to be a big factor when looking at loans, however, next to a good rate of 6.875% on the other, I just want to build sure I'm not overlooking anything, taking the 80/10/10 over the 90/10.
Please let me know your thoughts. Thanks!
Answers:
Something isn't closing properly on your math. Your loan for the 90% of the purchase price in Option #1 is at 6.875%. That part of the pack is ok, but on the second loan with 80% at 7% and 10% at 9.14%, the blended interest rate on that package is 7.24%. Your complex interest rate option has the lower payoff which doesn't add up with the statement that the both loans on the second likelihood are 30 year fixed.
The rates may be fixed for that long, but the 10% loan is likely an interest only where on earth the principal isn't repaid. IF you are ok with that, go ahead, of late make the realization that these two packages are not an apples-to-apples comparison.
good luck!
ps - the team game for rental properties is almost always cash flow
EDIT - If you can find a lender predisposed to do the 90/10 and let you avoid PMI, then it seem like that is your best bet. Cash flow is king.
Both loans are attractive. Neither is a clear vanquisher. Most rental properties are not profitable unless you put 30% down payment. That has be true for most of the last 40 years. No one ever has that much money, so everyone struggles to engender the best choice from limited options. Flip a coin.
I guess i'd pick the 90/10.
Related Questions:
Do you hold to reward mortgage insurance beside the FHA 3.5% down clearance loan?
I'm getting an FHA loan which includes a 3.5% down payment. Do I still have to reward mortgage insurance or will that be covered by FHA? The mortgage insurance will be factored into your monthly mortgage payment. Yes you...