MARKET & TRENDS
LENDING EQUATIONS
Evaluating the Numbers
CONSERVATIVE CALCULATIONS IN YOUR REAL ESTATE INVESTMENTS CAN BRING REWARDING RETURNS.
Content provided by Aaron Chapman, Security National Mortgage
L
ast month’s article left you wondering about mainte-
DISCLAIMER: This article is for in- formational purposes only, contains the opinion of the author, not neces- sarily the opinion of SecurityNational Mortgage Company, and should not be construed as lending advice. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet LTV requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines, and are sub- ject to change without notice based on applicant’s eligibility and market con- ditions. Refinancing an existing loan may result in total finance charges being higher over life of loan. Reduc- tion in payments may reflect longer loan term. Terms of the loan may be subject to payment of points and fees by the applicant. Equal Housing Lend- er. SecurityNational Mortgage Com- pany Inc. NMLS# 3116. Any amounts, figures, payments or loan terms stated are based on continually changing markets, rates, loan programs and borrower specific qualifications, and subject to change without notice. The above information is the sole intellectual property of the author. Any distribution without written consent of the owner is strictly prohibited © .
Especially when maintenance and vacancy are not part of the equa- tion yet. It’s time to calculate:
nance and vacancy and how that impacts the numbers discussed. If the investor as the CEO of their new real estate investment firm makes the right decision with re- spect to buying the right property, and working with the right property management, is it reasonable to think that such a property can be maintained and vacancies weath- ered with 40 percent of the acquisi- tion price? That is $41,980.00 to take care of these contingencies for the 30 years discussed. Many say that can be on the conservative side and the figure is much lower than that. So be it…Let’s be conservative. Subtracting the $41,980.00 from the $221,407.16, the remainder is $179,427.16. That is a great return and that figure does not include the $5,500.00 put back in the inves- tor’s pocket, the $20,990.00 initial investment (still belongs to inves- tor), rent raises, appreciation, tax benefits, or hedge against inflation. When you plug in these figures to evidence, the return any calculator will show is the sum of “ridiculous” as a final figure. Since I like to play in the conser- vative waters, we can beat on these numbers a little more and see what we get. Let’s estimate that the monthly cashflow after the prin- ciple, interest, tax, insurance and property management is $250.00. That is a somewhat unsexy num- ber for a $104,950.00 property.
$5500.00 spent 22-month recovery at $250 per month 338 months left to cashflow (360-22 = 338) $84,500.00 cashflow ($338 months X $250.00) $168,460.00 income ($84,500 cashflow + $83,960.00 paid off loan) $41,980.00 contingency for maintenance and vacancy for 30 years $126,480.00 total income sub- tracting the contingency fund of $41.980.00 All together = $5,500.00 paid back $20,990 still invested in the property
$126,480.00 clear profit $41,980.00 contingency $194,950.00 total
So, we see at even a small income of $250.00 per month this one investment can gen- erate $126,480.00 of profit on top of paying the investor back their $5,500.00 and holding their $20,990.00 in a secure place where their Mr. Hyde consumer cannot take it and buy a depreciating toy. •
Aaron Chapman has been in the finance industry since 1997. His clientele ranges fromfirst-time home buyers to those in- vesting inmultiple properties for long-term cashflow. He is presently ranked #14 in an industry of more than 300,000 licensed loan originators.
96 | think realty magazine :: november / december 2019
thinkrealty . com | 97
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