SmartCapitalist.com

Financial Analysis of New House

Sunday, March 26, 2006
It has been a long time since I have posted last. The reason for this is that I recently moved out of my apartment, and bought a house. It is near a college campus, and I rent out the other 3 rooms to other college students.

The previous owner used to rent it out at $1200 a month and has last changed the price 4 years ago, so it probably had room to go up as there was never a vacancy. So there is room to change the rent to $1400 when I graduate and move out in a few years. Right now I am charging $325 per room and access to the central areas.

The contract price of the house was $101,000. In the contract, the owner agreed to pay $3500 of closing costs and pre-paids. The loan was an FHA first homeowner’s mortgage and had a rate of 5.82%. It also had a low down payment requirement of 3%. PMI ended up being 40.57/month, and goes down with the principal of the loan for 12 years. I found that although I had to pay PMI on this government loan, it was still a better rate than I could get otherwise.

The amount due at closing ended up being $1,635. Adding in $500 for the earnest money, and a $20 application fee for the loan. After all was said and done, the total cost out of pocket was 2,155.

If I did not live in this property, I have figured that the BTCF is $4,387 a year. That would make the ROI 203%. This figure is only allowing $600 a year for maintenance, which is very tight, but potentially achievable. Since I do live in the property, and do not pay rent, BTCF is only $1,579 which would make ROI 73%. Still, not too bad considering I am living there for free.

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