Let's buy an investment property

Hi guys!

I thought it would be fun today to run some numbers with you on the funds you'd need to purchase a $110,000 investment property. 

Something to remember, unlike a primary residence, an investment loan will require at least a 20% down payment and the interest rates are typically higher as well.

With that in mind...let's dive in!

Sales Price:  $110,000

Down Payment of 20%: $22,000

Financing: $88,000

Interest Rate: 7%

Loan Length: 30 years

Monthly Payment: $585-$650 with est. taxes/insurance

Rent Needed: $815

*Rent needed depends on your goal for a rental, however, I'm basing this on if it were me personally buying an investment property.  I consider them a long term investment, where I'd want the monthly mortgage to be paid off over time by the tenant.  Thus meaning, the down payment of $22,000 was my initial investment.  I end up owning a $110,000 home, which in 30 years should be paid for free and clear, and it should have appreciated in value as well. (worth more than $110,000 in 30 years)

So, how did I arrive at that rental value?

You don't want to just charge the monthly mortgage payment.  Why? What if something goes wrong?  As a landlord, you are responsible for fixing things that break, i.e. heat/air, a leaking roof etc.

Therefore, I'd always advise you take your monthly payment and multiply it by 1.25.  That covers your monthly payment, plus some to put in reserves in case something breaks in the future.  Let's be honest, when you own a home, something always breaks at some point.

Have a question about investments?  I'd love to help!

In the next couple of weeks, I'll pick a property for y'all that I'd consider a good investment based on price and market rent.  Until then, have a great week!

-Caroline