How much down payment when you have a lot of capital?

Question

Hi All,

I'm from Australia where the market is extremely high where the average single family home here in my city costs 900k and cash flow is extremely hard unless you have a lot of capital and put down a large down payment. But ive stumbled across a market with some good 2 bedroom units that go for 350k with about 15k rental income. My question is am I better off putting down a big down payment or splitting my capital across multiple properties? I'm probably able to purchase 5x 350k properties with a 100k down payment. But i'm unsure if I should just put in 50% of the value to make sure I have cash flow. I've been investing in crypto for over 6 years which is why I have a lot of capital. But the money is useless unless i put them into real estate for cash flow

Thomas S. · Answer

Real estate is a good investment, however buying cash flow with a DP is not investing. Dead equity in a income property is little more than very expensive hoarding of cash.

If mortgage rates are at 5% and a investors cash has a opportunity value of 10% every dollar sitting dead in a property is losing 5% annually.

Buying cash flow is very expensive, loses money and turns a income property into a liability when the equity is generating the cash flow not th eproperty.

Equity does not increase cash flow is buys cash flow...this is not investing. When a investor must park cash to "create" cash flow they have purchased a property that has, and always will have, negative cash flow.

Brent Coombs · Answer

@Bao C. Ho, Lindsay has asked a very good question. I've met him, and know that he has good contacts in the USA. The fact that you're asking here on BP likely means that you're open to the idea of stretching your dollars a lot further in the USA than in Australia?

eg. US$680k can buy you a 37 unit building that currently grosses $160k/y (30% vacant).

How much will Au$800k of yours earn you in that same year in Australia? Welcome to BP!

Lindsay Stewart · Answer

Hi Bao

Are you thinking of investing in the US market, or using your funds to get into the AU market?

Cheers

Lindsay

Lindsay Stewart · Answer

@Bao C. Ho

Sure not a problem, happy to catch up for a chat anytime

Cheers

Lindsay

Bao C. Ho · Answer

Hi Lindsay,

Just had a quick look at your website and it certainly does look interesting. It will be many months before I jump into anything but I will contact you up when I'm all set up and ready

Nathan Gesner · Answer

Real estate is a great investment tool...but that doesn't mean you will win in every situation.

It sounds as though multi-family is the only way for you to go but the market is saturated. I would hold the funds in something fairly safe and wait for the market to stabilize or for the right deal to come along.

Bao C. Ho · Answer

Hi Will,

Apartments are available but there is a huge over supply of apartment development here in Sydney. Someone mentioned to me in PM that I have the option to build wealth through appreciation of equity which seems like the better option for the Sydney market. Positive cash flow is pretty hard here in sydney due to the high prices. A 1 bedroom apartment can go for 350k in a 'bad' area and up to 700k in a 'good' area. It's pretty tough here so I dedicated my younger years with high risk crypto to raise capital.

You are right even with 30k gross it would still be a crappy investment

Will G. · Answer

Congrats on your crypto success and wisdom to get out with gains! Is that 15k your yearly net? cause it better be! you need 30k gross to have 15k net(including management) and still kinda crappy investment wise unless you are SURE it will appreciate. 350k x 4.4% = 15k.

No apartment buildings available? I would think your cap rate would be better

How much down payment when you have a lot of capital?

How much down payment when you have a lot of capital?

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