Hello. I found a home seller with some good numbers…here it is…but I have a question about it.
value 199,000
loan 131,0000
asking 170,000
payment 1100/ month PITI
I am not worried about acheiving a monthly cash flow spread because the loan value and payment are quite low. If I find a tenant/buyer who can pay 1400/mo i will have a 300/mo positive cash flow. My question is if a tenant buyer is only paying 1400/mo, when they try to get financed later on they buy the home for 200,000 and the payment jumps to 1700/mo will the bank not take the previous payment history as my tenant/buyer into account for approving their loan because they were only paying 1400 and now they will be responsible for more (1700/mo). In a more simple form, should I make sure I charge the same amount per month to the tenant/buyer as they will have to pay the lender once they get financed to make sure they are able to get financed later.
Hopefully that made sense,
Sonriffic
Catch 22.
If you collect the rent, and pay the seller.Yuo know the mortgage is paid.
Now if they pay the lender directly, that is a paper trail. Need to keep banks statement of income deposit into account to show incomeand need 12 months and need to save voided check that they be paying the rent on time. What is your gurantee that they will pay the rent on time. If they do not live to thier agreement. What if they refuse to move out? Have you thought this far?
What is the appreciation in that area for the last 5 years? What if it depreciate? What is your back up plan? Some area of the states, home value is soft and property do not move as fast. Normally, 90-120 days on the market. What if you tenant buyer do not get financing doy have a list of tenant buyer? Do you have a 30 days notice for them to exercise thier option , give you time to find another on or shouls have one line up. Are you charging the the 3 to 5 percent of the value of the house? . Got to go answer you questions later. Next client. Next.
BTW, if you have $1100 a month PITI and charge $1400 a month in rent, you DO NOT have a $300 a month positive cashflow…that is an absolute, indisputable fact!
Keith
If you are paying $1100 a month for Principal, Interest, Taxes, and Insurance (PITI) and are renting out for $1400 a month, you have not allowed for:
Maintenance
Management
Vacancy
Legal Expenses
Utilities (possibly)
…and the myriad of other expenses that go along with property management! You need to allow 40 - 50% of the gross rent for property management items. This property will probably lose at least a hundred dollars a month when the accounting is all done!
You don’t have to account for them, but they’re GONNA happen, so you’re not fooling anyone but yourself by not accounting for them!
Keith
Good answer Keith. Way to go.
Posted by: kdhastedt Posted on: Mon. Aug 21, 2006, 08:08 AM
If you are paying $1100 a month for Principal, Interest, Taxes, and Insurance (PITI) and are renting out for $1400 a month, you have not allowed for:
Maintenance
Management
Vacancy
Legal Expenses
Utilities (possibly)
You do have $300/month postive cash flow because the tenant/buyer is responsible for Maintenance and Utilities and you take the Management Vacancy and Legal Expenses out of their up front commitment funds.
$200K financed for 30 years at 10% interest (the current rate for bad credit) is about $1750/month, not including taxes and insurance.
If you are planning on doing a lease/option agreement with anyone, might as well have them paying at least what they are going to be paying when they refinance.
Raj