Can you explain the Abbotsford Hot Property and how you arrive at cash flow?

I always see the words “cashflow” but when I try to do the numbers, I don’t see it. Can you explain the Abbotsford Hot Property and how you arrive at cash flow?

Owner Asked on September 10, 2019 in Real Estate.
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I have had the agent Richard Morrison ( mls@strawhomes.com ) do a ‘cash flow’ sheet based on a 20% down payment and a variable and fixed mortgage on that hot property. (Thanks Richard).

Richard Morrison: I have run 2 scenarios on the spreadsheet print outs below:

The mortgage calculation is on $420,000 (assuming a 20% down payment of $105,000) and not on the full amount of $525,000.  As such payments are as follow: 
1) $1,916 /month with a 5-year variable rate of 2.65%
2) $2,065 on a 5-year fixed rate of 3.33%. 

Here are the 2 scenarios in detail:

1) With a 5-year variable rate mortgage at 2.66%, the unit will cashflow at $1,762 per year (after mortgage, taxes and maintenance fees).

RE: Can you explain the Abbotsford Hot Property and how you arrive at cash flow?

 

2) With a 5-year fixed rate mortgage at 3.33%, the unit will break even and pay itself (after mortgage, taxes and maintenance fees).

RE: Can you explain the Abbotsford Hot Property and how you arrive at cash flow?

Major Point: So, there is cashflow, but in addition there is mortgage reduction and a dramatic increase in principal. Under the 5-year mortgage you reduce your mortgage by $13,820 EVERY year … increasing as you go along. The classic piggy bank (forced savings) … even if the market does not go up. If the value of property goes up by 5% a year you increase your asset by a further $26,500 per year (actually more as you increase in the annual increase as well. How much in total after 5 years … take a pen work it out … it is quintessential proof why you should use your $105,000 this way… 1. Actual cashflow, paid by tenant, 2. Mortgage reduction and 3. a possible increase in value … unbeatable.

Guru Answered on September 10, 2019.
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