First investment property down payment..

5 Replies

Hello everyone,

My husband and I are fairly new to the real state investment world, but we are very excited to start the journey. We are currently learning as much as much we can before taking the plunge into our first investment property. Loving BP! :)

One of our current decisions at hand is how to finance our first property. We have some cash saved which we would obviously rather keep in our pocket, we have our home which we just purchased last November, and we have a good chunk we can borrow from my 401k.

With that said, I guess my question is the following....

In your opinion and/or experience, what would be the smartest move to purchase our first property and use as down payment?

Cash? Home equity? or 401k?

Thanks. 

I would do cash using the least amount possible down. The less you spend to be "all in" on the property the higher your ROI (return on investment) will be. If you took $100K and paid cash for one house vs. taking that same $100K and financing and buying 4 houses by the time you run all the numbers (monthly income, equity capture etc.) you come out way ahead with the four homes mortgaged instead of one paid for home. If you can do it without touching the 401K or a home equity loan will be easiest.

@Nataly Llanes

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Hi Nataly,

My preference has been to use cash on hand for down payments.  I am extremely adverse to taking out a line of credit on my home since I am looking forward to a day without a mortgage on my personal home, and really don't want to touch the 401k until retirement.  The 401k will count towards the reserves that a lender will expect you to have, meaning if the wheels fall off the cart you could tap into that if needed, and I think they look at the equity in your home the same way.  If you don't have enough cash for a down payment and closing costs, either save til you do or get creative!

Kelly

Makes sense. Thanks for your help.

Originally posted by @Larry P. :

I would do cash using the least amount possible down. The less you spend to be "all in" on the property the higher your ROI (return on investment) will be. If you took $100K and paid cash for one house vs. taking that same $100K and financing and buying 4 houses by the time you run all the numbers (monthly income, equity capture etc.) you come out way ahead with the four homes mortgaged instead of one paid for home. If you can do it without touching the 401K or a home equity loan will be easiest.

Thanks a lot Kelly. That seems to be the popular answer. I think we are definitely leaning towards that as well. 

Originally posted by @Kelly N. :

Hi Nataly,

My preference has been to use cash on hand for down payments.  I am extremely adverse to taking out a line of credit on my home since I am looking forward to a day without a mortgage on my personal home, and really don't want to touch the 401k until retirement.  The 401k will count towards the reserves that a lender will expect you to have, meaning if the wheels fall off the cart you could tap into that if needed, and I think they look at the equity in your home the same way.  If you don't have enough cash for a down payment and closing costs, either save til you do or get creative!

Kelly

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