Posted by Bud Branstetter on April 08, 1999 at 15:16:39:
This is just the way I do things because of the market. Rents on many proerties are higher than the conventional 1%(PITI) of value if a new loan could be procured. Many people can afford and rent at more than that 1%. I let them tell me what they feel they can afford. If a 30 year amortization will work for my price and rate then that is what I use. Many times the affordability payment is such that either I would have to raise the price or the interest rate to get that payment. Because I would like them to refi and cash out I try to price near fair market value. It does me no good to sell for 60K at 9% if the house will not appraise for that in a few years. In turn if I jack the interest up too high it complicates selling the note with the purchase rate near the 12% range. So what I do in those circumstances is one of two things. First I may shorten the term of the first so with the higher payment it becomes worth more. The second thing I may do is add that additional amount to the second and have it pay off much faster. Typical note buyers add 1% to the yield for seconds if it falls within their parameters that they use to buy.