• Gross Annual Insurance costs: $1,200 • Gross Maintenance expenses: $1,500
Step 5: Total Expenses • Total expenses = Property taxes + Insurance costs + Maintenance expenses + Property management fees • Total expenses = $3,000 + $1,200 + $1,500 + $2,280 Total expenses = $8,980 Step 6: Net Operating Income (NOI) • NOI = Gross Annual Rental Income after vacancy - Total expenses Step 7: Mortgage Payment • Loan amount = Purchase price x LTV Loan amount = $800,000 x 0.80 = $640,000 • Monthly interest rate = Annual interest rate / 12Monthly interest rate = 6% / 12 = 0.005 • Number of months = Mortgage term in years x 12 Number of months = 5 x 12 = 60 Monthly mortgage payment ≈ $3,833.61 • Total annual mortgage payment = Monthly mortgage payment x 12 Total annual mortgage payment ≈ $3,833.61 x 12 = $46,003.32 Step 8: Cash Flow After Mortgage Payment • Cash flow = NOI - Total annual mortgage payment • NOI = $28,500 - $8,980 • NOI = $19,520 per year • Cash flow = $19,520 - $46,003.32 Cash flow ≈ -$26,483.32 per year In conclusion, after deducting your annual mortgage payments, you will end up with a negative cash flow. When investing in a second property, the Loan-To-Value (LTV) typically requires a 20% down payment. The mortgage payment depends on the interest rate you're paying. You might argue that
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