down payment in effect to brrr strategy

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down payment in effect to brrr strategy

Allan Anderton
Magna, UT · Member since 2018 · 25 posts · 4 votes

okay keep in mind I am still learning "so be gentle" I was watching a webinar by David I believe last week and wanted to bring my question to the forums to hopefully get it more explained for me... lets say I want to by a SFH and its my first btw its say 100k as it will be a investment property I would be required for the 25% down but lets say I have 50k in my heloc that I could use, being this is my first property would you put the full 50k in for the higher cash flow or would you go more over with the 25% down and go for the brrr and refi back out the investment? my follow up question to that "probably the dumb question" is IF the house was able to cash flow say 150-200 a month and I refi surely my new mortgage payment would shoot over that cash flow and drop me into a negative or did I miss something? so why would I refi the house to go from a positive to a negative? I am sure I am about to get blasted for this one:)

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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y

Once you're above 20% down and avoid PMI, it usually only makes more sense to go higher if it is all cash and you are getting a significant discount because of it. I'm doing that now, and getting a 20% discount.

It's borrowed money anyway, so your cf won't benefit dollar for dollar.  Do 25% and see how it goes, Allan. It's a one way street. You can always pay the loan down if you want after, but can't get your DP back.  

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  • Aaron K.
    Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
    8y

    You would probably want the 25% because interest on the loan would be less than interest on the HELOC, if this is not the case then the opposite would be true. In Utah if you refi and try to pull all of your cash out you will probably end up with negative cash flow, all RE is local so it works in some places, that just means you need to adjust your strategy or invest in a different market. It is difficult to find a property that will cash flow after you pull out all the money you put in, if it were easy everyone would do it.

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  • Abe Emmanuel
    Member since 2018 · 3 posts · 2 votes
    8y
    I’m a newbie too, and don’t own any rentals, so my knowledge is purely theoretical. 1. I feel if the property doesn’t breakeven ($0 cash flow) with 20% down, maintenance, insurance and taxes then it’s not a good deal 2. Also Just to be safe to evict a bad tenant I would just do the 20% and keep the rest as fire power for any un expected issues
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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    8y

    Once you're above 20% down and avoid PMI, it usually only makes more sense to go higher if it is all cash and you are getting a significant discount because of it. I'm doing that now, and getting a 20% discount.

    It's borrowed money anyway, so your cf won't benefit dollar for dollar.  Do 25% and see how it goes, Allan. It's a one way street. You can always pay the loan down if you want after, but can't get your DP back.  

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    I would listen to Steve Vaughan , he’s likely right. I wouldn’t put down more than 20 percent unless the rate on the other 75-80 percent was significantly lower, and it usually isn’t. If you plan to be in this industry a long time you should strive to eventually become a true cash buyer, meaning you use your own cash. This allows for great. Discounts and you can always refinance later if you want.
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  • Allan Anderton
    OP
    Magna, UT · Member since 2018 · 25 posts · 4 votes
    8y

    Yeah i was mainly trying to understand the refi part cause alot of the listings i am seeing would be hard pressed to get cf with a refi 

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  • Matt Sumsion
    Provo, UT · Member since 2017 · 27 posts · 5 votes
    8y

    Allan,

    Not dumb at all, you ask a great question and frankly there's not always one right answer when it comes to REI.

    I'd recommend talking to a loan officer and identifying what loan program is going to work best for your situation. Depending on your credit score, income, etc. you may surprise yourself with how the numbers work out.

    Also, unless you feel comfortable and confident in taking out all your HELOC I'd recommend saving some for a rainy day until you have a few properties that are cash flowing to give you a cushion. 20% down should be enough to get you into a good 1st property.

    I actually just listed a single family home in Magna for 215k... PM if that's a price range that would work for you. 

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