| % return on down payment on rental property question. |
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Casy04
New Member
Cash: $ 0.75
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Joined: 07 Feb 2007
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| % return on down payment on rental property question. |
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If you put 50k down on a rental do you aim to get a lets say 10% return on your downpayment in terms of montly/yearly cash flow? I am trying to come up with a figure that is considered good so i can base future purchases on this number.
ie 150k house purchase
50k down
100k mortgage = 6.875 7/1 arm = 650 a month
100 a month for insurance
100 a month for taxes
rents for 1250 - 850expenses = 400 a month cash flow (b4 unforseen expenses)
400 *12 months = 4800 = 9.6% return.
is this a good way of looking at it? I am figuring worst case scenario no equity growth. Just looking to maxmize a percentage of return on my 50k.
thanks.
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Wed Feb 07, 2007 6:16 pm |
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oldguy
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Location: arizona
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I don't look at the cash-flow number as a percent because you can make the cash-flow anything you want. For example, if you paid cash, you would also have 9.6% return on your $150,000. Or if you put $10,000 down, you would have an 18% return on $10,000.
BTW, you will be getting about $100/m due to depreciation - that will make it $1350/m rent.
I look at ROE, Return on Equity. That is the rent plus depreciation minus payment minus expenses divided by your current equity. That way you will be including your unrealized appreciation. (You don't want a worst case scenario, you want a close approximation). And you want ROE so that you can compare your return with other investments - if your ROE is only 5% and you can get 12% in stocks, that is what you need to know to make decisions.
And I would aviod the ARM and get a 6.875% fixed rate 30-years loan - that way you will be certain of your money supply.
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Thu Feb 08, 2007 2:13 am |
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Kiaser
Senior Member
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I second oldguy, there is absolutely no reason to get an ARM right now with fixed rates being so close to ARMs. You gotta balance value with security as well as money, and you cannot afford to give up a rate security that fixed terms give for a few fractions of a percent.
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Sat Feb 10, 2007 4:20 pm |
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