feedback needed - first rental property how much to down?

Question

Does anyone have any suggestions on whether I should down 20% or %5 for my first rental property?

Basically I don't want to sink too much of my own personal reserves to seed this rental property but I want the mortgage to be manageable for myself until I get a tenant.

Jaren Barnes · Answer

Hey Teo W. . He specializes in traditional financing and is an incredible guy!

Best of luck friend

Sante R. · Answer

Teo, I would also put down as less as possible. Remember the name of this game is to use OPM (other peoples money).  And get your tenant in ASAP, within 30 days and you won't have to pay the mortgage!  Good Luck

Jarrett Harris · Answer

Teo W.

Is this a multi unit or a single family home? I am asking because that may make your decision for you. Are you going to live in any of the units if it is multi family?

Jimmy Moncrief · Answer

Teo W. since this is your first I would go ahead and put 20% down.  You will have a lower payment which equals lower stress.

Plus, this is likely a lower dollar purchase so you can pay it off fast and build equity AND have higher cash flow.

Ryan M. · Answer

I'm on the other side of the spectrum, we put 75 - 100% down and put the rest, if needed, on a 5 year note. These are not single families and equates to much less units with a bigger bottom line and much less stress.

Spenser Harding · Answer

Working in a bank, I have talked to many mortgage pros on financing options for investment properties.  Since I used the conventional 5% down with pmi on my primary residence in 2012, I wondered if it was possible to get that financing on an investment property somehow.  As a colleague of mine told me it would only be possible to get that type of financing again if it "clear" I was moving to the newly purchased property and I had a renter lined up for my current home.  To me this is a bit of gray area - pertaining to business practices and moral/ethical standards.  It is true that investment properties typically require 20% down, however when this option was shown to me by a  pro, I don't know whether to follow the lead and label it "creative financing" or stick to the bank rules of the game and apply 20% down. Any BP's members every heard of this or used this before and what are your thoughts to the ethics of this? Still being new to investments, I still haven't purchased a property, I want to know if this violates some sort of investor code of conduct.

Tom Yung · Answer

@Teo Willis

Since this is your first one, I will put less down & keep a bigger reserve on hand for the the OOPS that will pop up one time or the other.

Once your property is stabilized, then you can pay down more later.

Jon Holdman · Answer

I'm with @Ali Boone.  I don't think you'll find 5% down for an investment property.  I had a broker recently tell me 15% down was a possibility, but with PMI.  5% or 3.5% or whatever FHA is doing might be possible on a multi if you're living in one unit.

Ali Boone · Answer

I'm a big fan of leveraging as much as possible, so the 5% would be great, but I've never heard of a lender who will let you do a down payment that low on an investment property. 20% is usually the minimum.

Isaac Palmquist · Answer

The standard is definitely 20% down on a basic 30 year fixed loan. I would just be careful where you get your properties. The rate of appreciation, depreciation, rental vacancy, hoa's and many other factors can have adverse effect on any rental. I agree with Jarrett, and many others stick with single family homes.

To Your Success,