All Forum Posts by: Joey Wang

Today, I was reading up on different types of loans - specifically, a fully amortizing vs. partially amortizing loan. I encountered the following table illustration:

What I notice is that with amortizing period loan of 20yrs at 10yrs loan term vs a fully amortized loan, even though the partial amortizing loan monthly payment is 27% less, the total dollars paid out to it is only 19% more! I would have assumed that if I paid 27% less per month, then I would pay 27% more in the end. However, what this table is showing is that I can pay 27% less each month and only have to pay 19% more in the end, saving me a difference of at least 8%. This isn't even taking into account the higher interest deductions. So am I interpreting this table correctly - that I should always try to go for a longer amortizing period assuming the same loan term? Is there something I'm not catching?

Thanks for the replies. I really appreciate everyone's input. It seems to me that there is a common answer: you can't accurately determine property price the longer the hold period. Additionally, trying to use cap rate to help aid in the estimation is fruitless since I will run into the same problem trying to estimate what the cap rate would be at that point in time.

Then it seems to me that when running through the numbers to determine whether a property is a good deal, I should not be focusing on trying to estimate the future property value to determine the rate of return in order to make my decision. Rather, I should use my own desired rate of return to drive my calculations and decision?

Forgive me if I posted this in the wrong section, I couldn't find any other sections that seemed appropriate.

I understand that when calculating either Net Present Value (NPV) or Internal Rate of Return (IRR), one must include the operating cash flow of each year. Additionally, the sale year must include the operating cash flow plus the cash proceeds from the sale of the property.

Calculating the annual operating cash flow seems straightforward. The tricky part is estimating the operating expenses and an accurate vacancy rate. However it seems to me that with enough tenacity towards research, that information can be uncovered.

The last cash flow year must also include the cash proceeds from the sale of the property in addition to the operating cash flow. What I am struggling with right now is understanding how one estimates the future purchase price of their property? What are standard methods used to estimate the purchase price of the property after X years?

Below are a couple of my guesses but I would certainly appreciate it if anyone else can weigh in with their thoughts.

1. Increase the purchase price of the property by X% depending on the average appreciation rate in that area.
2. Extrapolate an estimated purchase price based on the operating cash flow of the sale year.

Again, my question is how one estimates the future purchase price of their property? What are standard methods used to estimate the purchase price of the property after X years?

nationwidepi - if you do choose to write an article covering those questions you raised, can you respond back to this thread with the link?

Also, not trying to hijack this thread so if I should move this question, let me know, but where can I find more information on how to pool multiple loans to fund a real estate transaction or can anyone at a high level explain the different possibilities? Thanks.