Underwriter · Charlotte, NC · Member since 2015 · 30 posts · 15 votes
Hi
I am new in real estate investing and was looking to one day buy a SFD in my area. However, the "2% rule" seems totally shot in my local market. Looking at several online tools and doing some comps on Craigslist, it seems that the only way to generate a positive cash flow is to have significant down payment on your property so you can get a cheaper mortgage (30% plus).
My question is would you ever be willing to put 30-40%+ down on a home just to generate a larger positive cash flow on a house. Or sometimes are you happy just to "break even" at first, knowing that in a few years you can refi, or that rents will likely rise, or that within several years you can probably sell the home for a profit?
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
You're rationalizing that a larger down payment is getting you a higher cash flow. Yes, and so what. The bottom line is it's just costing you more of your money...as in cash. This is simple math...cash in, cash out...cash flow is only a part of it.
This is a typical deal in my market, so I'm not just making up numbers to prove a point. Let's say you are buying a house for 80,000:
Option 1: putting 20% down = 16,000. * Cash out of pocket 16,000 * Cash flow per month/yr 350,4200 * Time to recover cash in 46 months/3.8 years
Option 2: Putting 30% down = 24,000 * Cash OofP 24,000 * Cash Flow per month/yr 400,4800 * Time to recover cash in 60 months/5 years
Then you have to ask yourself, what else could I have been doing with the extra 8,000 I put down on the house? If I put it towards another property...?
It cash flows $ 13,000 + a year without figuring cappex (its pretty new) or maintanence or PM. We do the maintanence and so far there has been no maintainence or cappex and we do the PM
It cash flows $ 13,000 + a year without figuring cappex (its pretty new) or maintanence or PM. We do the maintanence and so far there has been no maintainence or cappex and we do the PM
Can you refinance to get some of your down payment back to re-invest?
It cash flows $ 13,000 + a year without figuring cappex (its pretty new) or maintanence or PM. We do the maintanence and so far there has been no maintainence or cappex and we do the PM===================================================================
Right now it is too early to refinance but as soon as we get it together we will try to refinance
Right now we are finishing up a duplex (A BRRR) that we ran $25,000 over reabbing for $50,000 instead of the budgeted $25,000.
We paid $72,000 + 50,000 for rehab total $122,000. We are hoping it will appraise for $150.000 and we get $105,000 and our down payment will come to $17,000. BUT that's just a hope on the appraised value. Its renting for $2,000 total a month
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
11y
@Jimmy Humphrey a lot of people banked on appreciation in 2005/06 and were devastated when the crash happened in 2008. You should clearly define what your investment objective is. You mention putting more down to get cash flow (which will negatively effect your ROI) but you also mention possibly being "happy with break even cash flow". Decide if you want cash flow or appreciation and then choose the market where you can best achieve it. It might not be in your own back yard. There are a lot of good cash flow markets but most are in the Midwest. Personally, I like Indianapolis and Kansas City a lot.
Engineer · Stratford, CT · Member since 2015 · 22 posts · 4 votes
10y
Hi all,
New investor, looking to pull the trigger on my first owner occupied property. After reading this post, I had two questions that I want to add for input.
Regardless of purchase price, what is an appropriate or average down payment amount? Does this depend on the cash flow goal that you expect to receive from this property? For example if I'm using an FHA loan with 3.5% down required, and with the properties that I am looking at, I have a hard time creating cash flow at all especially since I will be owner occupied for at least a year. If I was to put more cash down, then cash flow will be possible. Of course a lower purchase cost would negate the need for a high down payment, but with FHA requirements on property conditions, this is tough.
My second question would be, even in a situation of an owner occupied property, if the numbers after I moved out in a year (FHA requirements) proved to cash flow, would it still be okay to break even or have negative cash flow for that year?
Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 798 votes
3y
Assuming you're financing the deal with a traditional bank, I would only put down what the bank requires and no more. Generally speaking a 1.2 DSCR is what my lender requires.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
3y
If you have a potential property that has negative CF, and you think you are gaining by increasing the DP to convert the NCF to PCF, you are badly mistaken. All yhou would be doing is paying that NCF upfront, and gaining nothing.
I am new in real estate investing and was looking to one day buy a SFD in my area. However, the "2% rule" seems totally shot in my local market. Looking at several online tools and doing some comps on Craigslist, it seems that the only way to generate a positive cash flow is to have significant down payment on your property so you can get a cheaper mortgage (30% plus).
My question is would you ever be willing to put 30-40%+ down on a home just to generate a larger positive cash flow on a house. Or sometimes are you happy just to "break even" at first, knowing that in a few years you can refi, or that rents will likely rise, or that within several years you can probably sell the home for a profit?
I would like to hear your thoughts. Thanks,
This is math question. Simply put, if cap rate is 3% you need to put a downpayment as high as 40% just to make DSCR1.0+pay all PM/other fees.
Developer · Member since 2020 · 4k+ posts · 4k+ votes
3y
@V.G. Jason
What is your mix of investments? Cash, cash equivalents, SFH, MFH, commercial, Stock, Debt type ARM, 15,25 year? Don't need to know the dollars. What is the logic based on what you're discussing?
Developer · Member since 2020 · 4k+ posts · 4k+ votes
3y
@V.G. Jason
T Bills are the worst cash equivalent you can do right now.
T Bills are the best cash equivalent you can do now. Depends on maturity period.
Downpayment 10%, 25%, 40%, 60%. On one of our deals 60% was the best downpayment. I prefer 10% and keep our cash around us now, but for that deal 60% was the magic number. The other 40% was seller finance for 5 years with no interest and payment at the end of the 5 years.
My point is about Personal risk and reward. 5 years from now look back and see how many of these posters are still here. Then their model worked.