If we compare average 30 year rates (non-owner occupied) from 2005 to present, we can extract some key elements regarding affordability.
Assuming a loan amount of 200,000 (80% of a 250K sales price), the principal and interest payments are different by roughly $250. If you divide the 250 by the payment factor of 4.92 (30 year @ 4.25%) you get 50,410. (let’s call it 50K)
We can conclude today’s prospective buyers have an advantage of borrowing an additional 50K to apply to their sales price/loan amount budget and cash flow analysis.
Here’s another set of numbers.
Purchase price 250K
Loan amount 200K (20% down)
P&I = $984 + another $250 for taxes ($2500) and insurance ($500)
PITI = $1234.
If gross rent was $1500 and we take 25% off (for vacancies, repairs and maintenance), you net $1,125. So depending on property condition and tenant longevity, etc., it pencils out close to being a wash.
In 5 years, the principal would be paid down by $18,615
10 yrs $41,114
15 yrs $ 69,214
Now let’s add another layer of positivity. Assuming a 250K rental home in today’s market was very possibly worth 400K in 2005, that computes to a 37.5% change in value. I would be surprised to hear that rents have increased by more than 10%.
I think this shows beyond any doubt what a great opportunity is currently available for those willing to see it for what it’s worth.
I hope this helps shed some light!!
To your sucess,