How much should I put down for my first property?

Question

hi guys,I own my home in Southern California and I'm looking to buy my first multi family home for investment purposes.so now I'm just wondering should I put 20% down and get a smaller duplex, or put 10% down and get a fourplex? Thanks in advance!!!!

Aaron Mazzrillo · Answer

A totally unanswerable question by anyone but yourself and possibly your CPA.

Ralph R. · Answer

@David Faulkner  @David Latham David F. i reread your post And I see now what you are saying. You are correct  It is a safety net  and one most lenders require when you purchase using leverage. Most lenders will require a minimum of 20% down. More as your portfolio grows. And some will want a cash reserve of some sort. Commercial loans in my area run 25% or more. Shorter amortization as well.  They will look at the property projections and history as well.   I agree for a new comer more down is safer in any market.  RR

Dylan Vargas · Answer

@David Latham...Welcome David! Well without all the particulars if the property will cash flow, even if by a small amount, I would only go 10% and grab a 4 plex. Might as well keep more of your cash on hand for other opportunities. Good luck and congrats on being in the position you are to invest.

John Casmon · Answer

@David Latham Welcome to BP! Your question limits your options, so instead ask yourself, what's the most efficient use of the funds you have for a downpayment? 10% vs. 20% 2 vs. 4 unit doesn't really matter without looking at the greater picture. Typically, the more units the better, especially if the property is cash flowing (and in SoCal). PMI is not a sin as long as the tenants are paying for it. With that said, you do want to make sure you're not over-leveraged in case a major repair comes up or the market turns.

David Faulkner · Answer

You are putting words in my mouth that I never said, my friend. The extra money down has to do with safety as a newbie, a recognition and protection against their own inexperience, and nothing to do with cash flow. I'd advise to do the same in any market.

If the only way an investor knows how to make money is to have their investment trickled back to them a few hundred bucks a month at a time in cash flow, then they are going to have a tough lot in life over the long term IMO, no matter where they invest. Cash flow is an important thing, but it is not the only thing. There are additional ways to make money, and no they are not all gambling to those that know how to utilize them. Total profit is what matters, and cash flow is but a small slice of it.

Justin Owens · Answer

@Ralph R. I totally agree with what you are saying. Generally a REI wants to maximize ROI. Given the ambiguity of the question I was trying to get the ball rolling.

Ralph R. · Answer

@David Faulkner  while I agree about the 50% rule as well as 2% rule etc etc basicaly you are telling @David Latham it's okay to buy any property in so cal  as long as you put enough money into it at purchase to cash flow?   It still lowers your COC (interest rate). Basicaly your saying  put more in at a lower rate of return and then gamble on appreciation??  RR

David Faulkner · Answer

Real estate is local ... you need to always keep this in mind especially living and investing in SoCal, as it is a different beast entirely and should be treated as such. Those offering advice that live in a different market and are not familiar with this one give advice that may be OK for them, but likely won't fly here. With leverage comes higher risk and potentially higher reward ... an experienced Real Estate Investor can assess and manage the risk, but as a newbie I'd err on the side of putting more down (as much as you can afford). You could always cash out refinance later to leverage up after you gain some experience, but it is usually really hard to adjust the other way if you get over leveraged. And yes, you still want a super great deal here, and cash flow is still important to consider, but I'd focus on your equity position more so than the cash flow. Throw the 50% rule out the window too ... it is useless in this market as costs do NOT scale with rental income as it suggests they should.

David Latham · Answer

Thanks @Ralph r. Ok so it's sounds like to get the 50% rule  and cash flow I need to get a super great deal? How do I do that?

How much should I put down for my first property?

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