I am new to real estate investing and I am hoping to purchase a duplex soon to house hack. My question is.. is there any benefits to putting a higher percentage down? Or is it better to put the lowest amount down and perhaps invest the rest of the money in another property?
@Taylor Wade Wirthlin The advantage to putting more money down is that you are borrowing less. This lowers your monthly debt service payment and allows you to keep more cash flow from the income. By putting less down, you increase the mortgage payment, thus reducing the amount of cash flow your investment makes. Not percentage of cash on cash return, but actual dollars in your pocket. Also, if you put more money down, you have more equity on day one. So if there is another housing crash, you will be in better shape financially than the zero down guy.
@Taylor Wade Wirthlin , what is your "opportunity cost" of putting down more than you need to? If you can find cash flowing deals all over the place, why would you go for just one?
Paying off two properties, each giving you just half their potential cash flow, serves wise investors better in the long term than doubling the deposit for just one.
Paying off three properties, each giving you just two thirds their potential cash flow, serves wise investors better in the long term than putting 150% of those deposits for just two.
And so on...
All depends on your goals @Taylor Wade Wirthlin . A larger down payment will mean lower mortgage payments and better cash flow, but adversely affect your Cash on Cash Return. What are your goals?
Assuming the rate stays the same and you still have cash flow from the property you are probably better paying the lower down payment and investing the rest in another property however if this is your first deal it might make sense to pay the lower down and put the extra cash in a savings account and forget about it for a while. Make sure everything is running smooth at the new property. This way you have a big cash reserve and can find out if you like being a landlord before you buy that second property. If it turns out you don't want another property you can always pay a chunk off on the one you already bought which will pay it off faster than having a smaller payment and paying more down at the purchase.
Thanks for all of your replies! Those are all super helpful. @Jay Helms Our goals are 1. To live with a low or no monthly mortgage (we're hoping the tenants in the other half of the duplex would cover this) and 2. To get our feet wet in real estate investing and see if we want to continue at a larger scale.
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