This is the second of three formulas for buying a rental property. In this version the rental is purchased with a down payment of 20% and a fixed rate loan of 80%.
Here are the assumptions:
Here are the Assumptions
|Purchase a Rental with a Loan Formula|
|Down payment @20%||30,000|
|Loan costs (1 point + $1500)||2,700|
|Closing costs (escrow and title)||3,500|
|Fixup and holding costs||13,800|
|Total Cost to Purchase||50,000|
|Rent earned on the property||1,430|
|Monthly principal and interest @4% 30 year fixed||573|
|Monthly property taxes||150|
|Monthly property management||95|
|Total monthly expenses||1,003|
Summary: If you can buy the property for $50,000, fix it up for $13,800, and get $1430 rent, you will net $427.00 per month. (Remember, income taxes on the net are not computed in this formula, nor are the mortgage tax deduction and business expense deductions calculated).
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