Average interest rate on Investment Property
With credit score of 813, What interest rate should I expect to pay on single-family investment home, purchased for $225,000, in Maricopa County, Arizona?
Thank you for your question. The answer to your question isn’t totally straightforward because it depends on a number of variables. The first thing to consider is your property’s estimated capitalization rate (or “cap rate”). This is the amount of rent revenue that you collect, minus taxes and maintenance, compared to the purchase price. For single-family rentals, 7%-11% cap rates are pretty common. In some big markets like New York or Miami, they can be far lower. 10% is often a good rule of thumb.
The next item that you have to consider is the structure and cost of your financing. This will ultimately come down to what lender you decide to use and their specific offerings. However, for single-family rentals in today’s market, it’s not uncommon to finance a buy-and-hold acquisition 75% at about 6% interest.
If you bought a house for $225,000 with the financing described above and a 10% cap rate, estimated $1,000 annually for taxes and another $1,000 for insurance, your annual cash-on-cash return should exceed 10%. It’s also important to remember that this excludes and potential appreciation in property values over time.
Hope this helps. If you’d like to get a better idea of your returns for a specific property, you can always speak with a commercial real estate broker in your area – most are familiar with cap rates and can examine your financing structure to give you a better idea of annual returns.
If you’d like more information on investing in real estate, be sure to check out our ultimate guide to Buy and Hold Real Estate Investing here: https://fitsmallbusiness.com/buy-and-hold-real-estate-investing/
Best of luck!