Low downpayment VS high downpayment
Member since 2024 · 11 posts · 7 votes
Low downpayment VS high downpayment
Most Popular Reply
Rene HosmanPro Member
Rental Property Investor · Denver, CO · Member since 2024 · 583 posts · 653 votesHi @Ricardo Lemus !
This is a great topic of discussion and ultimately I think depends on your goals and what metrics you personally try to maximize.
The first question is of course, can you get a loan with less than 20% down - but I'll assume you can given that you're exploring both options.
I recently read Real Estate by the Numbers by J Scott & Dave Meyer (shameless plug it's available through the BP bookstore here) and in chapter 36 they discuss exactly this - that in some cases using more leverage can actually boost your returns and you should run the numbers both ways to see what makes sense for you. The TLDR is that if you can take the money you would have otherwise put in the property and invest it somewhere with higher returns then you could be better off doing it that way even if it means smaller or no monthly cashflow because money in your hand now is more valuable than the same money in the future. But that does not come without risk of course. And that is assuming that you can rent your property and at least break even even without a 20% downpayment - assuming it's a rental that you're talking about.
5 Replies
- 2yRene HosmanPro MemberRental Property Investor · Denver, CO · Member since 2024 · 583 posts · 653 votes
Hi @Ricardo Lemus !
This is a great topic of discussion and ultimately I think depends on your goals and what metrics you personally try to maximize.
The first question is of course, can you get a loan with less than 20% down - but I'll assume you can given that you're exploring both options.I recently read Real Estate by the Numbers by J Scott & Dave Meyer (shameless plug it's available through the BP bookstore here) and in chapter 36 they discuss exactly this - that in some cases using more leverage can actually boost your returns and you should run the numbers both ways to see what makes sense for you. The TLDR is that if you can take the money you would have otherwise put in the property and invest it somewhere with higher returns then you could be better off doing it that way even if it means smaller or no monthly cashflow because money in your hand now is more valuable than the same money in the future. But that does not come without risk of course. And that is assuming that you can rent your property and at least break even even without a 20% downpayment - assuming it's a rental that you're talking about.
- Lender · Ellington, CT · Member since 2024 · 210 posts · 103 votes2y
Hi Ricardo,
When going with a lower downpayment you'll leave more of your capital available and liquid should you find another potentially great investment property. You will also have more cash on hand to complete rehab projects in fewer draws should it be a rehab loan.
When using a higher downpayment you'll be keeping higher equity in the property and can often get a lower rate with lower LTV (particularly with DSCR loans). You'll also be able to take out more on a refi down the line should you want one.
In the end it is up to you for your strategy, but you'll always want to make sure that you're at least relatively liquid enough to go after opportunities.
- Member since 2024 · 11 posts · 7 votes2y
Quote from @Rene Hosman:
Hi @Ricardo Lemus !
This is a great topic of discussion and ultimately I think depends on your goals and what metrics you personally try to maximize.
The first question is of course, can you get a loan with less than 20% down - but I'll assume you can given that you're exploring both options.I recently read Real Estate by the Numbers by J Scott & Dave Meyer (shameless plug it's available through the BP bookstore here) and in chapter 36 they discuss exactly this - that in some cases using more leverage can actually boost your returns and you should run the numbers both ways to see what makes sense for you. The TLDR is that if you can take the money you would have otherwise put in the property and invest it somewhere with higher returns then you could be better off doing it that way even if it means smaller or no monthly cashflow because money in your hand now is more valuable than the same money in the future. But that does not come without risk of course. And that is assuming that you can rent your property and at least break even even without a 20% downpayment - assuming it's a rental that you're talking about.
@Rene Hosman thanks a lot for all the Information you shared! 100% agreed with you about the "money in your hand now is more valuable than the same money in the future" and that's why every time I see and option to invest I'll go for it! I will talk to my credit union and see the options!
Thanks again! Enjoy the weekend!
- Member since 2024 · 11 posts · 7 votes2y
Quote from @Connor Hibbs:
Hi Ricardo,
When going with a lower downpayment you'll leave more of your capital available and liquid should you find another potentially great investment property. You will also have more cash on hand to complete rehab projects in fewer draws should it be a rehab loan.
When using a higher downpayment you'll be keeping higher equity in the property and can often get a lower rate with lower LTV (particularly with DSCR loans). You'll also be able to take out more on a refi down the line should you want one.
In the end it is up to you for your strategy, but you'll always want to make sure that you're at least relatively liquid enough to go after opportunities.
Hello @Connor Hibbs thanks for sharing this. I will try always to keep in the savings at least a 20% of a potential property investment! Thanks again!
- 2yRene HosmanPro MemberRental Property Investor · Denver, CO · Member since 2024 · 583 posts · 653 votes
Quote from @Ricardo Lemus:
Quote from @Rene Hosman:
Hi @Ricardo Lemus !
This is a great topic of discussion and ultimately I think depends on your goals and what metrics you personally try to maximize.
The first question is of course, can you get a loan with less than 20% down - but I'll assume you can given that you're exploring both options.I recently read Real Estate by the Numbers by J Scott & Dave Meyer (shameless plug it's available through the BP bookstore here) and in chapter 36 they discuss exactly this - that in some cases using more leverage can actually boost your returns and you should run the numbers both ways to see what makes sense for you. The TLDR is that if you can take the money you would have otherwise put in the property and invest it somewhere with higher returns then you could be better off doing it that way even if it means smaller or no monthly cashflow because money in your hand now is more valuable than the same money in the future. But that does not come without risk of course. And that is assuming that you can rent your property and at least break even even without a 20% downpayment - assuming it's a rental that you're talking about.
@Rene Hosman thanks a lot for all the Information you shared! 100% agreed with you about the "money in your hand now is more valuable than the same money in the future" and that's why every time I see and option to invest I'll go for it! I will talk to my credit union and see the options!
Thanks again! Enjoy the weekend!
Please keep us updated and let us know what you decide to do and why because it's a super great learning experience for all of us to hear about!!
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