Real Estate Financing Explained For You In Simple Math

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Financing, Real Estate

October 21, 2022
By

Jermaine Massey

So you’ve decided to purchase a piece of real estate… great! The problem is that you don’t have the money to afford a decent piece. That’s when you need to go to the bank and get a loan or financing plan.

Here’s how the math works out for a very simple deal: Let’s say your property costs $100,000. More than likely, you don’t have 100k in your pocket… But the bank does! They can give you the money to purchase the $100,000 property today.

So what does that mean for you? Well for starters, youre probably going to make something known as a down payment. For the sake of this example, lets set that down payment at $20,000.

Then the rest of the purchase price is going to be financed, and youre going to receive what is known as a note – sometimes referred to as a mortgage note. It’s often secured by a trust deed, but at the end of the day, you have a promissory note. Your note is the remainder of the transaction.

In this case, it would be $80,000. Here’s

In this case, it would be $80,000. Here’s how it works: (Price): $100,000 (Down payment): $20,000 = (Note): $80,000 The terms of this note can vary from state to state, transaction to transaction. Typically, with monthly payments and interest, it usually can take 15 or 30 years to pay off the note.

If youre the seller, understanding how to negotiate so that you make sure you secure your investment property is also important. One of the key concepts to understand is loan to value, and youre simply going to take the value of the promissory note. Here’s how it works: (Note):$ 80,000 ÷ (Price): $100,000 = (Loan To Value Ratio): 80% So with that, you are now armed and you understand some of the basics of real estate financing.

Ready to learn more about real estate investing? Listen to the Cashflow Diary podcast on Spotify: https://cashfowdiary.com

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Frequently Asked Questions

What is the first step to get started with Real Estate Financing Explained For You In Simple Math?

The first step is to educate yourself and create a plan. Research your local market, understand the regulations, and connect with experienced operators who can guide you through the process.

How much money do I need to begin?

You can get started with less than you think. Many successful operators began with creative financing, partnerships, or lease arbitrage models that require minimal upfront capital.

What are the biggest mistakes to avoid?

The biggest mistakes are not doing enough research, underestimating expenses, and trying to do everything yourself. Build a team, create systems, and focus on providing an exceptional guest experience.

Real Estate Financing Explained For You In Simple Math

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