Investor's Loan Guide by Graham W. Parham

Price $150,000.00 $150,000.00 Difference
Interest Rate 5.000% 4.750% 25.000%
LTV 85% 80% 0.05%
Down Payment $22,500.00 $30,000.00 -$7,500.00
Loan $127,500.00 $120,000.00
Monthly Payment (P&I) $684.45 $625.98 $58.47
Private Mortgage Insurance $71.00 $71.00
Total Monthly Payment $755.45 $625.98 $129.47
As you can see in the chart, for a measly $7500 more in a down payment,
you would eliminate having to pay PMI for the next 44 months (44 X $71.00 =
$3,124), as well as the cost of money is 0.250% better with 20% down ($7,500 @
.250% over 44 months is $951.57). You do the Math!
The next example will show the benefits of using 20% down leveraging for
properties versus buying one property and paying CASH.
Price $150,000.00 $150,000.00
Interest Rate Cash 5.000%
LTV 0% 80%
Down Payment $150,000.00 $30,000.00
Loan $0.00 $120,000.00
Monthly Payment (P&I) $0.00 $644.19
Monthly Rent $1,500.00 $1,500.00
Vacancy 8% $1,395.00 $1,395.00
Management 10% $150.00 $150.00
Net Cash Flow - (P&I) $1,245.00 $600.81
If you pay $150,000 in cash for one property, your net cash flow is
$1245.00. By putting 20% down with an 80% loan to value and a 5% interest
rate, your net cash flow is reduced to $600.81. Let’s not stop there. Keep in
mind that 20% down payment on a $150,000 home is only $30,000. If you
bought FIVE $150,000 homes and put 20% down on each with the same loan
terms and monthly rents, you could increase your return on investment by
$1759.05 a month to $3004.05. Invest your money wisely.
The net cash flows do not take into account the annual city, county and
state property taxes and the annual hazard insurance. The numbers may vary
considerately by the taxing authorities. You will have to include that
information in your bottom line.
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