Archives for January 2010

The value of below market financing in todays market

In todays market there are tons of small banks and credit unions who are not willing to dump there REO inventory for current value but are willing to offer financing on REO property that is way below market rates.

So I was running some fun numbers on my calculator today =) And thought I would post the results.

700K over 30 years at 6% interest=$4,197 a month, $1,510,867 in total payments and $810,867 in total interest paid.

1.3MM over 30 years at 1% interest=$4,181 a month, $1,505,273 in total payments and $205,273 in total interest paid.

Interesting to see almost the same monthly payment, and total payments made, by overpaying for a property to get a below market rate.

Of course this does not make sense if you plan on paying off the property early. However if one had the cash available to pay off the home early it would make more sense to invest in another property that was giving a net 15% cash on cash return. At this rate it would only take $334,480 to generate a $4181 a month cash flow and essentially be mortgage free.

Especially if the $334,480 was to be a down payment on a smaller loan amount with a higher interest rate. Like for example the 700K at 6% or something similar.

So mathmatically you could live in a $1.3MM home for $334,480 in cash generating a 15% return, as long as you get a below market rate on the first purchase. =)

However, I’m not recommending this in any way. Just considering the value of below market financing which is available in our current market. Interesting thought.

774 East 950 South Provo UT-Short Sale

Active- Asking 114,900-Short Sale subject to 3rd party approval