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Tuesday, April 10, 2007

Things Are Progressing

Things are moving forward on both the purchase of Rental #2 and refinance of Rental #1. I got the good faith estimates from the mortgage broker and, as some had suggested, the interest rates were a tad higher than I planned. The rate on the loan for Rental #2 is 7.25%, not the 6% I had used in my projections. I'm not too concerned with this however. Based on the existing $439 a month rent, the higher interest rate drops my ROI down to 10.9%. However, the lease is up June 1, at which time, my property manager believes I can easily raise the rent to $460 or more. At $460 a month, the ROI goes back to 13.4%, close to the 13.8% I estimated originally. Escrow is scheduled to close on June 1 or sooner, so I may be able to get the higher ROI from the start.

The rate on the refi of Rental #1 is 6.75%. The figure I used for my calculations was 6.25% and the difference is less than $25 a month, something I can live with easily.

Both loans are standard 30 year, fixed rate mortgages. I asked the mortgage broker to look for 5/1 ARMs, since he thought some could be found with interest rates a quarter point or so lower, but with the small loan amounts, no one was interested.

2 comments:

Doug O said...

What you can do is once you accumulate a couple properties, you can look into refinancing them all together under one loan... You should be able to pull out a decent amount of cash, while keeping your payments practically the same... Only problem with that is selling individual units out of the portfolio, but if you were planning on holding for a few years....

Shaun said...

Great minds think alike... I mentioned this possibility to the mortgage broker and his response was exactly what you said about selling them.. I think when I hit four properties, I might look into this in more detail.

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