Understand the Loan Constant and How to Use it

New landlords are often mystified as to why their income properties don’t produce any actual income. Most of the time the answer is due to a failure to recognize all of the costs. In addition to Taxes, Insurance, Maintenance, Management, and Repairs, another significant cost is the cost of capital. 

Many rental investors choose to take a loan on their properties, often in the form of a 30 year fixed rate mortgage. It is wise to understand what this money really costs.

The Loan Constant, also referred to as the Mortgage Constant or the Debt Service Constant is a financial metric that describes the actual cost of the money in terms of a percentage. The calculation is the annual debt service divided by the total loan amount. 

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