I realize this is a pretty broad question but I have been debating the pros and cons on how much to put down initially on a single family home. My first real estate property I put down the minimum since I moved in and lived in it for 6 months before getting renters in. I am now thinking about doing that again.
Do you suggest putting down the minimum on a property and have the rent cover the mortgage + any additional principle payments? Or do you suggest putting more money down up front so that the home is more paid off? My issue with this is I would have to wait longer to purchase another home.
Thanks for your help!
so, it’s time to employ BPs favorite answer: it depends on your goals.
financially speaking, it's better to get as much leverage as possible to make the numbers work. (Like a FHA loan if possible)
But, if you get more peace of mind for having the house more paid off, it might be worth it to get a second home loan or whatever and put down 20%.
It’s just up to what’s more important to you, and how fast you want to move. (Insert something in here about any action being better than no action to complete it all lol)
@Annie Johnson during your first 3-5 years of investing I would suggest using the low downpayment as the best option to get more properties under your built then later down the road going to larger downpayments (as long as the numbers pencil out).
@Annie Johnson I say it's all about the numbers. Assuming I can show it's a GOOD DEAL I shouldn't need any money down. There is also creative financing/owner financing etc. :)
I would certainly use less money down if you could. This, of course, also depends on how good of a deal it is and the return on investment.
I personally would put the least amount of money down as possible. The idea is to trap as little money as possible in the investment so that you can continue to make your money work for you. There are of course other decisions related to upfront costs aside from down payment, such as mortgage insurance (do you pay monthly or buy out upfront), rate (do you buy down or take a lender credit), and these are all based more on your financial situation and goals.
Technically the less money owed on the property, the more you are exposed for a lawsuit. If you have a $500k property with $480k owed, it is not worth an attorney's trouble to go after you, you only have $20k available for him to take. However if that same property were half paid off........now there's $250k to go after. Makes them more interested if ya know what I mean.....?
Thank you all!
Extremely helpful. What are your thoughts on putting more down initially for the down payment meaning the mortgage payments would ultimately be lower there for creating more cash flow from rent each month.
This is the issue I am currently contemplating, having more cash flow from the one property but starting my savings for my next property back near zero or put the minimal down and be able to purchase two next year.
From most comments it seems the consensus is when you are first starting out, build your portfolio as much as you can in the beginning by putting the minimal down and then later on advance to putting more down.
@Annie Johnson Put down minimum for now, take the cash flow. Later you can do what the big boys do.... Build your equity.