Ready to buy a residential property and planning a 5% down even though will end up paying a mortgage insurance that as per the closing disclosure says $140 for 3-8 years means 14K extra in 8 years roughly but by saving on the downpayment can use that money to buy more and get better return. Any thoughts ???
Mortgage insurance is definitely costly, but consider it this way. The 14k extra you'll pay over the life of the insurance is far less than the gross earnings from even one rental, so if saving the 15% to put on another property results in one extra purchase, you earn your money back many times over in a 3-8yr. period. Best of luck!
@Marita Jojo - I look at this two ways, one is opportunity cost, which is what you're implying...you can make more money with that 15% in your pocket and paying PMI, then you can leaving it in the deal. I agree.
The other way though is your risk. Personally, I aim to keep 30% equity in my portfolio, especially with prices going up quickly right now. When I assess my portfolio, my two defenses are cash flow and equity. Offense is my cash on cash return and buying for long term appreciation. If you only play offense, you can't win. Same goes for defense, so be sure your being balanced.
This also forces you to buy very good deals. The worse the deal, the slower your portfolio grows, the better the deal, you can leave less money in the deal and use that money on the next one.
Since it sounds like you're doing a loan to purchase, you may still have a good deal and they are loaning on the lesser of loan to value and loan to purchase price ratios....if so and you're buying under the appraised value, I assess my equity based on the property value and may go with 5% down if it met my criteria.
@Jody Sperling Thanks that’s what is the thought process but wanted to make sure not missing anything
@Ryan Howell the purchase price is the appraised value can’t get anything lower in this market. Great was of keeping the offense and defense balances need to think through more. Thanks a lot !!!