Greenville, SC · Member since 2017 · 27 posts · 5 votes
Guys, need some help evaluating my potential first property!
As of now, the owner has agreed to settle on a purchase price of 52K. Now, I am trying evaluate the best way to finance. I am talking to two separate banks and here is what they have offered:
OPTION 1: allowing a minimum of 15% down (because it's an "investment property") at 6.125% interest on a 30 year fixed mortgage.
Total Cash Needed: 13,800 (including 4k in repair estimates)
Cash Flow: $245 at
21% COC ROI
OPTION 2: allowing 10% down on a two year adjustable rate mortgage, 30 year term starting at 4.5% for those first two years subject to change:
"Your interest rate can change every 2 years"
"Your interest rate cannot inc or dec more than 8% over the term of the loan
"Your rate cannot inc or dec more than 1.0% at each adjustment.
At 4.5% with 10% down:
Cash Flow =$291; COC ROI: 27%
At the potential 8% cap
Cash Flow = 188$
So my question is which option would you choose? Also, would it be feasible to go with the adjustable rate and then potentially REFI 3-5 years down the road pending interest rate hikes? Thanks for the advice!
In a rising interest rate environment, I would prefer to lock in for 30 years on a buy and hold. A 6.125% investment property loan used to be a great rate before the recession. And 2 lenders willing to finance such a low purchase price is a find.
Both seem good if the property meets your numbers which it looks like it does in both cases. I'd count on the rates going up so Option 1 become better after the 8th year. So I guess it depends on how long you plan on holding the property or to pay it off. Also, if you plan on loading up on properties or just sticking with a few for a while. Not to hard to pay off such a small loan but if its one of many, maybe not as easy.
In a rising interest rate environment, I would prefer to lock in for 30 years on a buy and hold. A 6.125% investment property loan used to be a great rate before the recession. And 2 lenders willing to finance such a low purchase price is a find.
Thanks for the advice Lynn (thats my moms name :). Would it be feasible to start with the adjustable and say after 4+ years or however long it takes to get above that 6.125% could I then REFI it into say a fixed? Possibly with the same bank or another?