Posted by Merle on November 16, 2000 at 20:07:51:
We calculate our Buyer?s monthly payment by using an amortization schedule for 30 years at 11% interest. We then add 1/12 of the annual real estate taxes and insurance to the payment. Occasionally, we adjust a payment up or down from this if we feel it might be necessary. If the property value is $72,000 and you borrow $60,000, your monthly interest payment to your lender is $450. If your buyer pays $1500 down, their monthly payment ? before taxes and insurance ? is $670. You have a $220 per month cash flow.
Let?s see now ? if you have 100 houses, that?s ? not a bad monthly income.
You do not break down their payment to them showing the amount for taxes and insurance.
The percentage of our Buyers to cash out during the 3-year term varies from year to year. A lot depends on us. In 1999, we cashed out 25 in August and September. We worked hard with them and the mortgage company. Had us a little concerned about taxes ? more than $268,000 in capital gains. Just so happened we had some carryovers from previous years ? didn?t hurt at all. If they do not cash out in the 3 year term, we then rewrite their contract at the balance they owe, after applying all rent credits and option consideration. We do not charge any fees, penalties, etc. The simply start a new 3 year term at this new option price.