12/12/24 – Investment Property Strategies: Cash vs Financing – One more Condo off the naughty list! I’ve noticed many clients opting to pay cash for investment properties. While this might seem the safest choice, it’s not always the wisest move. Let’s break down three scenarios to illustrate the potential outcomes of different financing strategies. Imagine a 50-year-old investor with $600,000 looking to retire in 15 years and planning to leverage Airbnb rentals for income. Scenario 1: Cash Purchase Purchase Price: $600,000 (no loan) Monthly Costs: Taxes & Insurance ~ $850 Rental income: $4,000 - $5,000 net (Airbnb rental) Projections: Property Value (4% Annual Appreciation): 5 Years: $732,597 10 Years: $894,499 15 Years: $1,092,180 Rental income (3% Annual Rent Increases): 5 Years: $4,646 - $5,808 10 Years: $5,397 - $6,746 15 Years: $6,269 - $7,837 Outcome: Net Monthly Income: $3,150 - $4,150 initially; $5,200 - $6,800 in 15 years. Equity in 15 Years: $1,092,180. Scenario 2: 50% Down Financing Purchase Price: $1,200,000 Down Payment: $600,000 Loan Amount: $600,000 (15-year fixed-rate loan) Total Monthly Payment: $6,909 (includes Principal, Interest, Taxes & Insurance) Rental income: $7,000 - $9,000 net (Airbnb rental) Projections: Property Value (4% Annual Appreciation): 5 Years: $1,465,195 10 Years: $1,788,999 15 Years: $2,184,361 Rental income (3% Annual Rent Increases): 5 Years: $8,131 - $10,454 10 Years: $9,445 - $12,144 15 Years: $10,972 - $14,106 Outcome: Net Monthly Income: $91 - $2,091 initially; $9,500 - $13,500 in 15 years. Equity in 15 Years: $2,184,361. Refinancing Potential: When rates drop, refinancing could lower payments further, boosting income. Scenario 3: 25% Down Financing Purchase Price: $2,400,000 Down Payment: $600,000 Loan Amount: $1,800,000 (30-year fixed-rate loan) Total Monthly Payment: $14,963 (includes Principal, Interest, Taxes & Insurance) Rental income: $14,000 - $18,000 net (Airbnb rental) Projections: Property Value (4% Annual Appreciation): 5 Years: $2,930,391 10 Years: $3,577,998 15 Years: $4,368,723 Rental income (3% Annual Rent Increases): 5 Years: $16,262 - $20,908 10 Years: $18,890 - $24,288 15 Years: $21,944 - $28,212 Outcome: Net Monthly Income: $-963 to $3,037 initially; $5,500 - $9,500 in 15 years. Equity in 15 Years: $4,368,723 – $1,331,823 (remaining mortgage) = $3,036,900. Refinancing Potential: Refinancing could improve cash flow significantly if rates drop. Key Takeaways: Leverage Builds Wealth: By financing instead of paying cash, your client can double or even triple their equity while generating greater income over time. Diversification: With financing, the investor could purchase multiple properties rather than just one, maximizing both income and appreciation. Tax Advantages: Depreciation and other tax strategies can significantly reduce taxable income, especially with multiple properties. Refinancing Opportunities: When rates drop, refinancing can make the financing scenarios even more lucrative by lowering monthly payments and boosting net income. Retirement Goals: For a client aiming to retire with the highest equity and cash flow, financing with a 25% or 50% down strategy often makes more sense than a cash purchase. If you’re working with an investor considering a cash purchase, encourage them to explore these options. They could leave substantial money on the table by not leveraging financing to grow their portfolio. Let’s discuss these strategies and see how they could work for your clients. Contact me if you have any questions or need further details! I’m here to support you every step of the way. Whether you have questions about a loan scenario, need help with a client, or want to brainstorm ideas, I’m only a call, text, or email away. 📞 Cell: 661-714-6258 TEXT – 661-714-6258 📞 Office: 661-260-2970 ext. 2222 📞 Direct Line: 661-291-2222 📧 Email: Mike@AugustaFinancial.com Let’s make 2025 your best year yet! Together, we can achieve great things. But wait, there’s more… Interest rates were better last Friday, but the slide has remained moderate. It has been a mildly bad week for interest rates, but we hope we see a turnaround soon. 12-day escrows if your buyer is pre-approved - Conventional / FHA / Jumbo / Bridge We do loans in all states, so call me with anything you need. Government Loans (FHA / VA/ USDA) are in the 5’s and 6’s. Conventional Loans up to $806,500.00 are in the 6’s High Balance Loans $806,501 – $ 1,209,750.00 are in the 6’s Jumbo loans above $1,209,750 are in the mid to high 6’s Bank statement loans - They are available with 10% down again, and larger down payments are in the 6’s. Profit and Loss Statement loans – 20% down – You don’t need bank statements, just a profit and loss statement! 0 down loans are in the high 6’s – 620 credit score min right now, up to $1,250,000.00. Private Money lenders - Hard Money Loans – 35% down! No Ratio Loans 30% down DSCR – Debt Service Coverage loans with as little as 15% down Bridge Loans - typically 7.99% with limited fees – and they get you where you need to go! 3/2/1 Buydowns 2/1 Buydowns and 1/0 Buydowns are available at great start rates! Interest rates are subject to change without notice. The above are LA County Loan Limits. Good News / Condos – Village Walk – They just renewed their insurance policy, with a $25,000 deductible per unit. Still, the maximum deductible shall not exceed 5% of the total limit of insurance! Doing this to every policy would be a Christmas miracle! Brookside Walk – Yep, one more with the 5% deductible got pulled from the naughty list! YAY! Bad News on Condos – 4 new ones in the SFV Portofino Villas – 12411 Osborne – Master Insurance is Unacceptable Granada Plaza – 16940 Chatsworth Street – Project in need of critical repairs. 10% of HOA Dues are not going to Reserves. 15245 Sherman Way – more than 25% of the units are owned by one entity. Galaxy Whitsett Condos – 6133 Whitsett – Master Insurance Policy does not meet Fannie Mae requirements. All other naughty condos have been moved to MikeMeena.com. I will post updates here, but all the information on the naughty list is on my website. Just go there and click about, and you will find our most updated list. Please let me know if you hear anything new on condos or townhouses. I am still available all weekend if you need anything. 📞 Cell: 661-714-6258 TEXT – 661-714-6258 📞 Office: 661-260-2970 ext. 2222 📞 Direct Line: 661-291-2222 📧 Email: Mike@AugustaFinancial.com Have a great day and an even better tomorrow. Please call me when you have a client who needs to borrow! Mike Meena President | Loan Officer Click to Call or Text: (661) 714-6258 This entry has 0 replies Comments are closed.
