How does real estate make money

Question

I am a little confused. I finally lined up a few properties where the owner agrees with seller financing but I'm not sure of the terms that I should agree to. Why would I agree to pay more than the sellers are asking... Same with the bank why would I finance a property thus ending up paying more than its value due to interest?

The property is at 40000 oh, the sellers agreed to 4% down with 6% interest. But how long should I agree to the terms. I definitely don't want to have negative cash flow and want to turn some profit even if it's $100 a month but that would bring me-too about 7 year finance unless I do a balloon payment after a few. Still the process is better than a 30-year FHA but how do we make money if we are paying so much for a property that's not value this much?

Bill Plymouth · Answer

Well interest is essentially payment for the money that you are borrowing.  That’s why interest is charged.  Unless you have enough cash to purchase a property outright, you will be hard pressed to avoid interest.  One of the major benefits of realestate investment is that you can use other people’s money to purchase a cash flowing asset.

As the previous replies have said, generally as long as you can cashflow 1% of the purchase price, the property should be profitable.  You need to play with the terms to find out what makes your property profitable and what brings you into the red.

I hope this helps.  Good luck!

Joe Villeneuve · Answer

First, if you have positive cash flow, all you are paying for the property is the down payment...your tenant is supplying the money for the mortgage.

Kiera Underwood · Answer

As long as you can charge rent that is more than your payment, insurance, taxes, maintenance (3-10% of your income before you pay your mortgage) and vacancy (depends on where you are but here I estimate 5%.. this is also deducted from your income before you pay your mortgage).

Generally, if you can make rent 1% of the purchase price for the house, you're not in too bad of shape.

How does real estate make money

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