As the title suggests, we’re a little befuddled.
First, how do we use our equity to purchase property? We have a $74,000 mortgage and the house is valued at $125,000. What is the process of accessing the extra money (The purchase price was $93,000). Also, how does getting pre-approval work?
Second, we seem to be having a little information overload while searching for properties and are not quite sure how to evaluate them (despite reading the book). What does the 11 second rule indicate or take into consideration, for example:
We have found a few houses with a rent of say $280/week yet the repayments are $240/week, but the price of the property is above the 11 second rule indicator. Is there something we’re missing?
Last, how do you calculate yield, cash on cash return etc and how are they important?
Thanks in advance
Karl and Rita
The future belongs to those who believe in the beauty of their dreams. – Eleanor Roosevelt
Equity in house:
Value * 80% – mortgage = Equity available without mortgage insurance
125K *80%=100K – 74K = 26K equity available without mortgage insurance.Access:
Speak with your bank to have a line of credit extended against the equity, or to extend the total loan figure up to the 100K level.If rent is 280/wk and repayments are 240pwk:
How much is the lend? How much is the asking price? What are the rates, insurance, maintenance and management costs? Add all costs up and deduct from income to see if anything is left over – this is your cash flow.Yield:
rent times 52 / price = yield
eg
225/wk *52 = 11700
11700/62500purchase price = 18.72% return or yieldCheers
CDCastleDreamer
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