5 Replies

Should you always put in 20% down, or is there another percentage to put down to get the best returns?

Let's use an example:

\$80k purchase, \$1,200 rent/month. Total interest would come out to \$56k over 30 years. Is it better to buy this condo/house all in cash, better to finance with 20% down, or finance at another percentage?

Would it ALWAYS be best to finance with just 20% down? Does it depend on how much money you have? Let's say you have 1 million dollars and are buying a \$80k purchase, should you still only put 20% down or should you just buy the whole property with cash?

Now in reality I wouldn’t recommend this. I’d say 15-25 percent is a good amount to avoid overleverage

Originally posted by @Caleb Heimsoth :

Now in reality I wouldn’t recommend this. I’d say 15-25 percent is a good amount to avoid overleverage

I don't get how you get more return with 20% down compared to more down with all of the interest payments you pay over the life of the mortgage. Wouldn't this be like saying to finance a car by putting 20% down instead of buying the car 100% with cash?

@Tom Smith  let’s say you have a 100000 dollar house that rents for 1000.  After my taxes, insurance costs and PM (fixed hard costs you’ll have each month), let’s say I have 500 dollars.

If I buy this in cash my return is 500*12  is 6000 divided by 100000 is 6 percent.

If I put down 20 percent or 20k let’s say I cash flow 200 a month.  Now my return is 200*12 is 2400. 2400 divided by 20k is 12 percent much better.

Originally posted by @Tom Smith :
Originally posted by @Caleb Heimsoth:

Now in reality I wouldn’t recommend this. I’d say 15-25 percent is a good amount to avoid overleverage

I don't get how you get more return with 20% down compared to more down with all of the interest payments you pay over the life of the mortgage. Wouldn't this be like saying to finance a car by putting 20% down instead of buying the car 100% with cash?

I think Caleb is referring to a higher cash on cash return or COC. The less down, the higher return per dollar invested.

I like 20% down. Just enough to avoid PMI, which is a total waste at \$75/mo per \$100k borrowed.

If I could find stable assets like you mention that are 1.5% producers I'd buy as many as possible at today's resi rates. The interest paid over time will pale in comparison to your wealth growth with leverage there. Get 5x as many houses than paying all cash to save 5% a year.

But  not all debt is the same. Don't get me started on commercial. Shorter terms, adjustable and callable, waking you up from your nap to report your financials every year.  I put a lot down on those and pay off as quickly az possible.

Long term resi mortgages should be levered at 80%ish LTV whenever it makes sense if you plan on expanding.

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