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By Michele Lerner
While every real estate owner would love to have a crystal ball which would tell them how much they will earn on their property investment, such certainty simply doesn’t exist. But there are some ways to quickly estimate the costs and benefits of buying property.
Financing the Purchase
Long-term real estate investors often have cash available from previous transactions which can simplify the purchase of additional property. Needless to say, home sellers, particularly when the seller is a bank trying to quickly sell a foreclosure, will move fast to accept a cash offer since this eliminates the danger of a settlement falling apart because of a loan problem.
For those who do need to borrow money to finance the purchase, plenty of quick calculators are available online to demonstrate your monthly payments. At www.Bankrate.com for example, you simply need to plug in the loan amount, the interest rate and the length of the loan to gather a quick estimate of your monthly payments. Simply change the interest rate a couple of times to see the difference in payments at varying rates. The website also has current mortgage rates to give you an idea of how much your interest might be.
But in addition to comparing the monthly payments at various rates, you also should remember to consider monthly homeowner association dues, property tax payments and homeowners insurance payments because these must be included in your budget. If you are borrowing money and making a down payment of less than 20%, you’ll also need to estimate a monthly private mortgage insurance payment.
A lender can make these calculations for you over the phone or in person if you prefer. During the loan preapproval process the lender can come up with a variety of scenarios which will make your options clear.
Refinancing
If you already own property and want to know how much you can save and how long it will take to recoup the closing costs if you choose to refinance, go to www.LendingTree.com and enter some basic information in their refinancing calculator. This calculator not only gives you a fast estimate of loan payments at the new rate, but will make you check to see if you have a prepayment penalty on your existing loan and will estimate your savings based on how many points you pay and the average closing costs. If you find that recouping the points and closing costs will take years beyond the time you intend to own the property, refinancing may not make sense.
At www.LocalLenderInfo.com you’ll find another helpful refinancing calculator. For a broad estimate, just look at the current interest rates and points shown, even though that may not be the rate you receive.
Comparing Rents to Mortgage Payments
If you are an investor estimating whether the rent you can receive for a particular property will cover the mortgage, a couple of websites can give you a rough idea of rents in a neighborhood.
At www.RentVine.com and www.City-Data.com you can check on average rents by zip code. Of course, this is somewhat general information and you are better off going online at these sites and searching for a rental home that matches the description of the place you are considering purchasing. If the home is in a condominium or town home complex, it can be easier to get an accurate estimate of the going rental rate than for a single family home. Don’t forget to consider the location of the home within the neighborhood and the condition of the property, since this can have an effect on the rent you will be able to charge.
Michele Lerner, a real estate expert and freelance writer with 20 years of experience, is the author of “HOMEBUYING: Tough Times, First Time, Any Time”.
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