Question:
Hi, Mr. Sanford. I was hoping you could explain further your analysis method to me. I read this in an article and am interested in investing but am not sure I understand completely. You wrote:
The analysis is fairly simple. Imagine what you can get the income to in about 6 months. Use a 35% expense factor. This expense factor is high to most investors, but I have found it to be more realistic. Subtract this expense factor from the proposed income to find what is left over to pay principal and interest. Next, work backwards to see how much of the loan this payment will pay off with the current interest rate. Take the loan amount and divide it by the inverse percentage of the down payment you are going to use. This gives you the sales price. Using a digital offer form with a nice cover letter, E-mail the offer to the listing agent.
Is there an example you could give so I could better understand? The part I get lost on is working backward and then you say to take the loan amount and divide by the inverse % of DP to get the sales price. I am just unclear and would like to understand better. Thanks and God bless.
Stephen P. Reddell
Answer:
Once you find the loan amount that 65% of your income will service, you figure the inverse of your down payment which would be 80% if you were putting down 20%. Then take your loan amount and divide by .8 will give you the sales price to offer. Good luck! All the rich people in the next ten years will have bought today.
