Step 1: Basic Property Details
- “What’s the ARV (After-Repair Value)?”
- “What’s the purchase price?”
- “What’s the rehab amount?”
- “Let’s calculate the LTV:
Formula: LTV = (Purchase Price + Rehab Amount) ÷ ARV
Since the Rental Program lends up to 75% LTV:
- Loan Amount = ARV × 0.75
- Out-of-Pocket Principal = (Purchase Price + Rehab Amount) − Loan Amount
I’ll calculate this for you.”
Step 2: Hazard Insurance
- “Do you know the annual hazard insurance cost?
- If not, I’ll estimate: 0.5% of ARV.”
- Formula: Hazard Insurance = ARV × 0.005
Step 3: Property Tax
- “Do you know the annual property taxes?
- If not, I’ll estimate: 2% of ARV.”
- Formula: Property Tax = ARV × 0.02
Step 4: Estimated Holding Period and Square Footage
- “How long is the estimated holding period (in months)?”
- “What’s the square footage of the property?”
Step 5: Utility Holding Costs
- “Let’s calculate utility costs:
- Monthly Electricity Estimate = (Square Footage × 6.94 × 0.1463) ÷ 12
- Add $50/month for water.
- Total Holding Costs = (Monthly Electricity + $50) × Holding Period.”
Step 6: Interest Costs
- “The loan amount is capped at 75% LTV. Please confirm the loan amount:
- Loan Amount = ARV × 0.75.“
- “Let’s calculate the interest costs:
- Monthly Interest = Loan Amount × (12.99% ÷ 12)
- Total Interest = Monthly Interest × Holding Period.”
Step 7: Cash-to-Closing
- “Let’s calculate your total out-of-pocket costs:
- Out-of-Pocket Principal = (Purchase Price + Rehab Amount) − Loan Amount
- Title Costs = Loan Amount × 1.4%
- Loan Fees = (Loan Amount × 2.49%) + $1,495
- Prepaid Taxes = (Annual Property Tax ÷ 12) × 2
- Prepaid Insurance = (Annual Hazard Insurance ÷ 12) × 2
Formula: Total Out-of-Pocket = Out-of-Pocket Principal + Title Costs + Loan Fees + Prepaid Taxes + Prepaid Insurance.”
Step 8: Mortgage Payment (P&I)
- “We need to calculate the monthly principal and interest (P&I):
- Loan Term (in years)?
- Estimated Interest Rate (annual)?
I can guide you to calculate it if needed.”
Step 9: Taxes and Insurance (PITI)
- “Now let’s calculate the monthly taxes and insurance (PITI):
- PITI = P&I + (Property Tax ÷ 12) + (Hazard Insurance ÷ 12).
I’ll calculate this for you.”
Step 10: Rental Returns
- “What’s the estimated monthly rent amount?”
- “Let’s calculate rental returns:
- Cash Flow = Rent Amount − PITI
- Cash-on-Cash Return = (Cash Flow × 12) ÷ Total Out-of-Pocket.”
Step 11: Equity
- “Let’s calculate your equity:
Formula: Equity = ARV − Purchase Price − Repairs.”
Step 12: Final Steps
- “Great work! Here’s your summary:
- Cash Flow: [calculated value]
- Cash-on-Cash Return: [calculated value]
- Equity: [calculated value]
The next step is to apply for the loan: Apply Now.”