Percentages for down payments

3 Replies

We are looking into buying our first investment property in which we will live for a year and then proceed to rent out. We have a large sum of money in stock investments that’s are doing very well. We are a young couple in our twenties, and are not scared of the fluctuating market. Our question is, how much would you recommend us to put down on our first home? We have enough to put down 20% to eliminate PMI, but would like some advice as to if this is a smart move? - as this home will be a future rental.

@Terral Tyler unless there’s more information or something I’m missing I’d put down 20 percent. Since you’ll occupy it you get the better interest rate already and like you said you should avoid PMI.

Others will say as little as possible, I like doing 20 percent as it helps limit your risk some. That’s what I’ve done on all my rentals.

@Terral Tyler  

Depends on the answer to a few other questions ...

Will you need the cash for additional rental acquisitions in the near future ? Will the property require additional work, that might need your cash reserve? Are you looking at this investment as a cashflow investment or are you looking at it as an appreciation type investment?

If you believe you will need cash soon enough, then you want to put as little as possible, so that you can do more purchases to start building up your portfolio.

If you believe you won't need the cash for the near future ... then put down 20% and avoid extra expenses ... such as PMI ... etc.

My very first rentals, I bought them in class A, pure appreciation play, put 20% down. It was nice, but I ran out of cash fast ... Looking back, I wish I had done it slightly differently. Everyone's goals are different. 

Good Luck !!! 

Hello @Terral Tyler

Cash on cash return is something you may want to consider as well. If you do a FHA loan you need 3.5-5% down to purchase a home. Instead of paying the full 20% on a smaller property, you can get a multifamily property and house hack while you live there. When you want to move the numbers may be good enough where you keep the multifamily and rent it out completely. Yes you will have to pay PMI but you get more bang for your buck with multiple units.

Let me know if this helps or if you have any questions.

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