Possible to make ROI on low down payment?

Question

Hi BiggerPocket family,

Is it possible to make profits on 3% down payment after monthly expenses? It seems like you need to put down 20% or more. How do other investors keep buying property after property? Do they refinance existing investment and leverage that on new property (20%)? If yes then existing rental unit where a refinance was done, the monthly would go up, maybe even more than rent coming in.

Any experienced investors, please advise on your strategies.

Thank you,

Kapil

Kapil Patel · Answer

Appreciate your feedback @Harjeet Bhatti and @Spencer Abeyta

Harjeet Bhatti · Answer

MI is bigger factor when you have lower down payment which increase your mortgage payment. MI can be paid in different ways which can reduce your mortgage payment. Ask your lender, give you all the options for MI so you have different options.

Spencer Abeyta · Answer

If you do your research and the numbers work out then it is possible to cashflow on 3% down. Money is made on the purchase price. Also there are certain loans like a VA or FHA loan that require very low money down. These are owner occupied loans of course so it does depend if you are willing to move into the property. If not, putting that low amount down will require an MIP payment along with just the normal mortgage payment.

If you follow the BRRRR strategy you buy the property at a good price where the numbers make sense. Then you rehab it, and force appreciation, ie increase the value of the house (this creates equity when you refinance). Rent out the fixed up property to a renter to start recouping some of your money. Refinance, this step will allow you to pull money out of the property assuming your rehab increased the value. You can use the money you pulled out of the property to use as a down payment for the next property. Repeat :)