Building a Honolulu Real Estate Empire!
June 11th, 2008 categories: Buying Honolulu Real Estate
Disclosures Before You Read This Blog.
1. The FHA may not allow the purchase of multiple properties.
2. Lender guidelines regularly change and loan programs may not be available in the future. Specific terms outlined herein could change too.
3. The interest rate of 6% is an example and may not be available when an attempt is made to get a loan.
4. A 3% appreciation rate is an example. It is possible that you could experience little or no appreciation. It is possible you could experience negative appreciation. DO NOT RELY ON THIS BLOG TO DETERMINE AN EXPECTED RETURN ON INVESTMENT.
5. All estimates made in this Blog, are for discussion purposes only and should not be relied on for purchase or investment decisions. Should you decide to follow any portion of this plan, it is imperative that you seek legal and tax advice regarding its application to you and your financial goals.
I am 47 years old and I am going to outline a plan that may be too late for me to use. Federal Housing Administration (FHA) Loans have long been the mortgages that offer the lowest down payments for anyone that is not a veteran of the armed services. With the debacle in portions of the general mortgage industry, FHA Loans are one of the few sources for parties with small down payments to get a mortgage for their home purchase. Here are a few nuances of FHA mortgages.
1. They can be obtained with 3% down payment
2. Their lending guidelines are more forgiving than most conventional lenders (they will accept much lower FICO scores).
3. The FHA will inspect the property and may require repairs to bring it to FHA standards.
4. You are required to live in the property.
5. A seller can credit a buyer up to 6% of the purchase price toward closing costs.
6. Gift down payments from relatives are acceptable.
So here’s the plan.
1. Assuming you are paying rent, calculate how large a mortgage you can carry with your monthly rent.
2. Seek tax advice and determine if you get any tax benefit from the mortgage interest you pay on a mortgage. With this information, you may be able to increase your monthly payment and, after taxes, pay the same amount as the rent you are currently paying.
3. Make application with a lender qualified to make FHA Loans.
4. Have the lender get you pre-approved for a FHA Loan.
5. Once you know you are qualified, work with a great real estate broker and look for a property that can be purchased at a price that will allow it to be rented two years from now at an amount that will cover your cost of ownership.
6. Buy the property. Move in. Live there as required by FHA. Repeat steps 1 through 5 (in the future if, an FHA loan is not available, then another source of financing may need to be identified for your next purchase).
Assuming a 3% annual appreciation rate and a 6% interest rate on a 30-year loan, here is an example of how you might benefit from this plan.
Property 1
Purchase price $200,000
Initial loan amount $194,000
Loan amount 10 years from now $162,350
Value in 10 years $268,700
Equity in 10 years $106,350
Property 2
Purchase price $200,000
Initial loan amount $194,000
Loan amount 8 years from purchase $170,200
Value 8 years from purchase $250,300
Equity 8 years from purchase $80,100
Property 3
Purchase price $200,000
Initial loan amount $194,000
Loan amount 6 years from purchase $177,300
Value 6 years from purchase $238,800
Equity 6 years from purchase $61,500
Property 4
Purchase price $200,000
Initial loan amount $194,000
Loan amount 4 years from purchase $183,500
Value 4 years from purchase $225,100
Equity 4 years from purchase $41,600
Property 5
Purchase price $200,000
Initial loan amount $194,000
Loan amount 2 years from purchase $189,000
Value 2 years from purchase $212,180
Equity 2 years from purchase $23,180
Total equity built over 10 years $312,730.
Assuming down payments of $6,000 on each property, the total of the down payments for 5 properties is $30,000. Pretty good return for using dollars that you would otherwise not have working for you (paying them out in rent) to build a sizable real estate portfolio. Think about it.
Today’s picture is from the start of a canoe race looking up at the Koolau mountains above Kalihi and near Kamehameha Schools.
Fha Mortgage Loan Guidelines
I enjoyed reading your blog. What a great thing it is to be able to share information like this on the Internet.