Does it make sense to put down more than 20-25%

Question

Let's say I want to purchase my first property for 100-120K. In order to secure a loan I'd need to come up with 20-30K.

Does it make sense to put down more than the minimum down-payment in order to decrease the P+I and increase cash flow?

Would it be better to leverage as much as possible and use the extra capital for cash reserves or to start funding the next property?

JD Martin · Answer

If I were financing straight out I wouldn't do less than 20% as Max noted for the same reasons. Otherwise, if you are going to pay PMI, you might as well put down nothing or as little as possible.

Kerry Baird · Answer

Thanks, @Josh Mitchell.

Josh Mitchell · Answer

@Kerry Baird 6 months on each property? Sounds like a pretty strict overlay...... I typically see 6 months on the property you are purchasing and then 2 months of reserves on each property already owned? Might be time to find another lender...

Peter S. · Answer

Thanks everyone for your input. It's a great resource to have others confirm what you already suspect to be true. I am finally at a point with some capital that I can put to use so now comes the fun part.

Harjeet Bhatti · Answer

As a investor you don't want to block your cash in one property. So go with minimum down payment.

Rick S. · Answer

@Peter S. keep in mind banks may require more than 20% down for your future properties if you have more than four mortgages in your name.  So if your goal is to acquire more properties soon then definitely save the cash for those future down payments.

Peter S. · Answer

Thanks for the input @Andrew Johnson, @Max Tanenbaum, @Cortney Jones. This will be my first property so it probably makes sense to put down the minimum possible and have cash left over for any items that pop up.

Andrew Johnson · Answer

@Peter S. I'd maximize reserves, basically, don't put more down than necessary.  It's your first property so I'd go down the road of "you don't know what you don't know".  Once that money is in as a down payment it's not like there's an easy way to extract it if there's an unexpected cap-ex expense and you haven't built adequate reserves.  Over the long-haul it also never hurts to have mortgage interest to write-off against the income of the property.

But I will throw a caveat out there.  Sometimes you might get a better rate if your LTV ratio is something like 60% instead of 75% or 80%.  At that point you have to balance the interest rate reduction against keeping cash on hand.

Max T. · Answer

Different schools of thought on this one.

Some want to maximize leverage and invest every dollar of cash they have.

I like to put 20% down. I just hate paying that PMI and it is more forgiving for my DTI ratio (for future purchases) than a minimal amount down does.