Do You Know Your True Cost of Borrowing on Your Investment Properties?

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Do You Know Your True Cost of Borrowing on Your Investment Properties?

Do You Know Your True Cost of Borrowing on Your Investment PropertiesRegardless of whether you’re buying a property for investment purposes or to call your home, it is likely that you will need at least some amount of financing in order to make the transaction happen. What is your cost of borrowing?

But, looking at borrowed capital through the eyes of an investor as versus that of a consumer, the numbers can mean different things – and ultimately, the way that you borrow on a property can make a big difference in terms of how much you’ll return overall.

For example, when most consumers are purchasing property as their primary residence, they are often looking for a loan that will allow for the smallest monthly payment – even if it means that they will pay more in total – provided that they stay in that property and eventually pay the loan off.

But what about for investors who are not only looking for a way to produce a return on monthly income, but also a profit when they go to sell the property?

That can depend on how long you plan to keep it. For example, a shorter term loan will typically have a higher APR (Annual Percentage Rate) than a long-term loan. Based on a study conducted by the Electronic Transaction Association, while APR is oftentimes an effective method of comparing the cost of credit on long-term consumer loans – such as a mortgage – it does not always provide all of the information that is needed when considering the best option for financing.

Take, for instance, the chart below.

Loan Amount Loan Term APR Monthly Payment Total Cost Of Capital
Loan A $10,000 5 Years 19% $259.41 $5,564.33
Loan B $10,000 6 Months 59% $1,916.67 $1,500.00
Source:
Electronic Transactions Association

 

 

In this case, the amount of time that the borrower has to repay the loan can make a significant difference in the total cost of capital that’s being used.

There are also other considerations in determining the ultimate cost of owning and managing investment property. One of those criteria is your time. If you are vying to make the best use of you time, then hiring an experienced property manager to handle the day to day tasks on running your real estate business can make sense. For more details on how to work in conjunction with a property manager in the Orlando and Central Florida area, Contact Us today.

2017-06-07T14:55:21+00:00 By |Advice, Financing|

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