Proposed Plan for this property #1 : Buy and Hold
- Purchase the property with for $295, 800 = 25% down ($73, 950) leaving a remaining balance of $221, 850.
- Get an appraiser in to re-appraise the property. Property appraised at $340, 000.
- I have a mortgage broker within my real estate network to supply us with 2nd mortgages up to 85% LTV of $340, 000 = $289, 000.
- 2nd mortgage = $289, 000 - $221, 850 = $67, 150 pulled out to buy more properties.
- Terms of 2nd mortgage are 12%-14% interest for 5 year fixed term. There are NO payments until 2nd mortgage matures. This has already been pre-arranged with the private lender
- This property re-appraises at $340, 000
- $73, 950 (25% d.p) – $67, 150 = $6, 800
- It cost us $6, 800 to purchase this property.
Purchase Price: $295, 800 * 1.07% (conservative appreciation) = $414, 874.80
Property Appreciation = $414, 847.80 - $295, 800 = $119, 074.80 – $40, 290 (interest cost on 2nd mortgage at 12%) = $78, 784.80 profit.
Mortgage pay-down = $400 * 60 months = $24, 000.
Net profit = $78, 784.80 + $24, 000 = $102, 784.80
Property #2 bought with equity pulled out as 2nd mortgage
2nd mortgage = $67, 150
2nd property $295, 800 = $73, 950 as 25% down-payment
Additional down payment required = $73, 950 - $67, 150 = $6, 800
Purchase Price: $295, 800 * 1.07 (conservative appreciation) = $414, 874.80
Property Appreciation = $414, 847.80 - $295, 800 = $119, 074.80
Mortgage pay-down = $400 * 60 months = $24, 000.
Net profit = $143, 074.80
Combined payout of both properties
Total net profit = $102, 784.80 + $143, 074.80 = $245, 859.60
Total cash investment = $6, 800 + $73, 950 = $80, 750
R.O.I = $245, 859.60 / $80, 750 = 304% / 5 years = 61% per year
This R.O.I is based on 7% appreciation for the next 5 years.
Edmonton August 2005/2006 was 35.6% annual appreciation. (Edmonton Real Estate Board)