10/10/2019- I hope your week is going well and I know many of you were watching our beloved Dodgers go down in flames last night. What a sad way to end a great season, but I am glad they did not torture us with another World Series loss! Tonight is a Hole Lot of Fun (https://www.holelotoffun.org/
So last night while the Dodgers were winning I had the opportunity to speak in Mark Jenkins Real Estate class at College of the Canyons. Not sure why I like this so much, but it is always interesting talking loans and Real Estate with people that are interested. When I was done, I thought to myself, how many people take advantage of leverage in a real estate? So let’s start today with our 1st time buyer that is looking at a condo for $375,000.00 and they have 3% down. This couple is going to save up 5% down every 5 years to buy something bigger. We don’t know where Interest rates will be, but we will assume that rents increase by 3% per year! They will move up by 75K every 5 years.
Condo 1 – 2019 – $375,000.00 Purchase Price – Payment with taxes and Insurance = $2575.00 – Rent today = $2200 / payment in 5 years =$2625 / rent in 5 years $2555 / Value in 5 years $435,000.00 / Loan amount in 5 years $327,000 / Principal paid in year 6 = $8065.58
Condo 2 – 2024 – $510,000.00 Purchase Price – Payment with taxes and Insurance = $3500.00 – Rent today = $2800 / payment in 5 years =$3575 / rent in 5 years $3250 / Value in 5 years $592,000.00 / Loan amount in 5 years $441,000 / Principal paid in year 6 = $9784.14
House #1 – 2029 – $660,000.00 Purchase Price – Payment with taxes and Insurance = $4200.00 – Rent today = $3500 / payment in 5 years =$4300 / rent in 5 years $4065 / Value in 5 years $766,000.00 / Loan amount in 5 years $571,000 / Principal paid in year 6 = $12.661.83
So the first 10 years this couple purchased 3 homes and rented the first two. Rents increase over time and so does value. Payments stay relatively the same as only taxes Insurance and HOA change, but the mortgage payment does not. Where are they in 2054?
They have 2 condos that are paid for. Condo 1 is worth $1,070,000.00 and is getting rents of $6278 per month with taxes of $787, Insurance of Insurance of $90.00 and HOA of $850 = $4551.00 Net Income
Condo 2 is worth $1,253,000.00 and is getting rents of $6879 per month with taxes of $967, Insurance of Insurance of $90.00 and HOA of $850 = $4972.00 Net Income
House 1 – is worth $1,395,900.00 and will be paid for in 5 years. The payment is $4826.00 and the balance is $170,000.00.
Their net worth in Real Estate in 2054 is $3548,900.00 and they have income of $9523.00. Oh, and the original investment was $69,750.00 + Closing costs! Um, need I say any more? It’s not
Rocket Science!!! It’s called save and invest!!! By the way, the rents above will be net positive day 1 and they will be positive cash flow shortly after they start renting! Your mileage will vary, but wow!!
Interest rates are still a little whacky right now! Yesterday was steady but higher and today we have a little more of the same. Credit scores are very important on all conventional loans right now as the buydowns can be extreme. Here is a glimpse of where they are at this time:
Interest rates are still in the 3.5% (3.62% APR) – 4.00% (4.00% APR) range for conventional loans.
FHA and VA Rates are in the 3.25% (FHA APR 4.578 / VA 3.35% APR) -3.50% range (FHA APR 4.683 / VA 3.42% APR)
Jumbo Loans are in the 3.75-4.250% range (APR 3.796-4.309)
Why Ranges? Because they are changing a lot and a 3.50% Rate may be $1000.00 more in cost than a 3.875% rate depending on a credit score and down payment. Every deals seems to price differently depending on the time of day!
I will be around all weekend! My cell is 661-714-6258 and my office line is 661-260-2970. I will pop in and out Saturday and Sunday and I hope to hear from you or your clients. Please let me know if you have any questions and have a great weekend!!! – Mike