How Your Fico Score Can Greatly Affect Your Cash flow
I recently read an interesting magazine article, again this time from Business Week, about how your Fico score can affect your housing affordably. Taking that one step further, it can also greatly affect a real estate investor’s cash flow. The very same property can be cash flow positive for one real estate investor while being cash flow negative for another. How? With the aid of MyFico.com, let’s take a look at the difference in cash flow (assuming no other costs than the mortgage to greatly simplify this article).
Using data directly from MyFico.com, below is the interest rate and mortgage amount for a $150,000.00 rental property with a 30 year fixed mortgage.
| Fico Score | Interest | Payment |
|---|---|---|
| 760-850 | 5.94% | $1,287 |
| 700-759 | 6.16% | $1,318 |
| 680-699 | 6.34% | $1,342 |
| 660-679 | 6.55% | $1,373 |
| 640-659 | 7.53% | $1,435 |
| 620-639 | 8.96% | $1,515 |
As you can quickly see from the table above, there is a large difference, up to about 1.5% difference in interest rates based on the FICO score alone. The amount difference is $228/mth to the cash flow bottom line! That’s a huge difference!
In other words, a real estate investor with the highest FICO score can buy a residential rental property up to 18% more expensive than one with the lowest FICO score! That or they can make 18% more cash flow which is even better!
Therefore, another way to increase your cash flow from your real estate rental properties is to increase your own personal FICO Score.
