$170K to $180k, Rent $2000 with a 7.25% IO loan($1027/mo payment).
I have been looking for several months and this far better than anything I have looked at before.
Don’t really know how good something is unless you know exactly what it is that you are looking to get.
Purchase price $170K, is it good? Don’t know. What is the true FMV of the property? $180K, $200K, $250K?
Rent $2000/month. Is it currently rented for $2K or do you simply believe that you can get $2K? If rented, for how long and do they actually pay on time (or at all)?
I/O loan payment of $1027/month. That payment is only true at $170K total loan. That payment is also only true as long as your interest rate doesn’t change. Every I/O loan either has a balloon payment or a rate/term change in it. At some point you will either have to refinance the property, or the payment will change. Payment change will either be a variable interest rate (amazingly, it goes up much faster than down), or a change in payment to a principle/interest payment. Either could make your payment just hundreds of dollars per month.
Furthermore, an I/O loan NEVER pays any principle unless you pay extra. Now, if you bought right (example, $300K value for $170K), then that’s not really a problem. But if you’re buying close to retail price, then you may have a huge problem if you would need to sell.
Raj
OK, so the biggest variable is the purchase price. I should make sure I get the best rate, but always make sure I get it at the best price.
Thank you for your time RAJ.
snavaz,
This is not a good deal and is not a positive cash flow property. Throughout the entire United States, operating expenses (including capital expenses) run 45% to 50% of the gross rents. That means that $1,000 will go toward expenses and you’ll have $1,000 to pay the mortgage. Obviously, your initial mortgage payment is $1,027 which means you have a negative cash flow. As Raj said, this will only get worse as your loan adjusts.
It doesn’t matter if this is the best deal in the entire state, if it won’t cash flow I wouldn’t buy it.
Mike