September 29, 2022

September 29, 2022

President | Loan Officer
Mike Meena
Published on September 29, 2022

September 29, 2022

I spoke with a client a couple of days ago, and they were interested in talking equity out of their house and buying an investment property. Below is an example of how it would work with the buyer using no money out of pocket and extracting the down payment from the equity they have in their current home:

  • The first step is to get a 2nd mortgage on their home for the down payment and closing costs – $160,000.00 @ 7.49% = $1117.65
  • $600,000.00 Purchase Price - 25% down – 30-year Fixed rate - 6.500% – Loan Amount $450,000.00 / Principal and Interest $2844.31 /Taxes $625.00/ Insurance $100.00 / Total = $3569.31
  • A $600,000.00 property will rent for about $3200 per month. Your all-in payment will be about $4686.96 per month. With a 4% annual appreciation, you will build up approximately $24,000.00 in equity annually. In 10 years, your home will be worth $895,000.00, and in 20 years, $1,333,550.000. You will also pay off about $6500.00 in the first year. Rents have increased by about 8% in 2022, but if you use 3% annual increases, you will receive $3717 in 5 years, $4318 in 10 years, $5826.42 in 20 years, and $7862 in 30 years when your home is paid off.
  • Year 1 – $38,400 Rental Income + $24,000.00 Appreciation + Principal payoff $6500.00 – $56,244 Mortgage = $12,656 assumed profit
  • Year 5 – $44,606 Rental Income + $28,700.00 Appreciation + Principal payoff $8700.00 – $58,000 Mortgage = $24,006 assumed profit for year 5.
  • Year 10 – $51,815 Rental Income + $34,600.00 Appreciation + Principal payoff $10,900.00 – $61,000 Mortgage = $36,315 assumed profit for year 10.

If you sell in year 10, you will sell for approximately $895,000.00, and you will owe $511,781 between the two loans. You will be able to sell and net roughly $383,218.00. You would have paid out of pocket an additional $135,000.00, so your actual net would be $258,218.00

Let’s just say that interest rates go down 1% in 2 years, and you refinance – You will save an additional $4500.00 per year. If rates go down by 2%, you will save $9000.00 per year. Property values will likely skyrocket when rates go down so that you may make a little or a lot more!

There are also write-offs, and you can depreciate the property, reducing your taxable income by about $15,000 per year if you can take that deduction. Your investment is the cash flow difference; if you can afford that, you will build long-term wealth without investing any upfront money. If your 10-year investment is $135K and you walk with $258K, then you are making 10.47% annually on your investment. If rates drop by 1%, your return on investment is 11.59%.

Interest rates dropped the past few days nicely and started roughly today but are getting better. Let’s hope they get better for a while and hope inflation runs away!

  • 30-year Government Loans (FHA / VA) are in the high 5’s and low 6’s.
  • Conventional Loans up to $715,000.00 - low to mid 6’s
  • High Balance Loans $715,001.00-$ 1,072,500.00 are in the mid to high 6’s
  • Jumbo loans above $1,072,500 are in the low to mid 6’s
  • 5/1, 7/1, 10/1 Arms are in the mid to high 5’s
  • Bank statement loans - They are available with 10% down again! 7’s + depending on down and credit score.
  • Stated income loans – I have one bank with 30% down, but everything else has to be perfect! Interest rates are in the high 7’s - low 8’s.
  • 0 down loans are in the high 7’s to low 8’s- 620 credit score min right now! Mid 6’s, for the most part, up to $735,000.00.
  • Private Money lenders - hard Money Loans – 35% down!
  • No Ratio Loans 30% down
  • Debt Service Coverage loans with as little as 25% down
  • Bridge Loans - are typically 7.99% with limited fees – But they get you where you need to go!

Interest rates are subject to change without notice! Above are LA County Loan Limits.

I will be around all weekend if you have any questions or if someone interested in buying a property! My cell is 661-714-6258, and my office line is 661-260-2970 xt. 2222. Please text me at 661-714-6258 or email me at Have a great day and a better tomorrow! Please call me when you have a client that needs to borrow!

President | Loan Officer
Mike Meena President | Loan Officer
Click to Call or Text:
(661) 714-6258

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