Posted by Sean on April 25, 1999 at 16:57:25:
…people who think their income will go up at 7.5% a year every year are silly. I’d also like to point out that a lot of people that had normal mortgages got overleveraged in the 80s as well.
On the other hand rents are known to go up 3-5 percent a year (let’s say 4 percent). So you buy one unit on a 30-year amortized and one unit on a 30-year GPM and plan to raise rents at 4 percent and your mortgage payment will stay constant on one and raise 7.5 percent on the other. That’s an average of 3.75 percent raise per property. The 4 percent rent raise will carry that without difficulty.
One hand washes the other. Similarly the GPM property pulls the 30-year amortized along the first 15 years, the amortized one pulls the GPM along the last 15.