House hack: I only need 3% down, but should i put down more?

Question

Hey all. I have a fourplex in the works that im looking to house hack. My question is: If i technically only need to put 3% down on it with a conventional loan, should i put down more? Im going to sell my SFH to fund this, and i have quite a bit of equity in my home. With that being said, i would still only be able to put down 10% on the fourplex, at most. So do i put down 3% or 10% to bump up the cash flow a bit? I understand my cash-on-cash return will go down if my down payment goes up. (40% COC with 3% down, and 22% COC with 10% down). I have been doing everything i can otherwise to do my due diligence to make sure this is a good deal no matter how much i put down, but just curious what everyone's thoughts on that would be.

Steven Ko · Answer

It seems like all people care about here are their spreadsheets and number of units.  There are a lot of success stories that get shared on here but there are probably way more stories of people who fail that aren’t being shared.  I guess I just find it funny that these people know nothing about your personal situation and the most common answer is “use more debt”.

A book I read said, “no one cares more about your money than you.”  I’m not saying using debt is bad advice but maybe they have more experience than you, or using opm, etc.  it’s easy to get fomo when you see everyone else around you being “successful” and it’s easy to get suckered in.

By no means am I saying don’t invest in real estate. You should invest in real estate. But just be careful taking advice on here so quickly.  usually I say do what makes you comfortable.  I like to pay all cash, but it’s getting expensive so I’m looking into 40-60% down payments.  I like SFR and most people would tell me to buy MF. That’s the cool thing about investing is there are a million and one ways to do things :)

Theresa Harris · Answer

@Sergiu Micula  It isn't as much about the extra cash flow as that is only higher because you put more money into it (ie it is an artificial number).  You will need money for closing and what if there are vacancies?  Where the difference in down payment matters is how much interest you will have to pay over the life of the loan.  Better to have some money in the bank just in case something goes wrong.  You can always do extra payments if you want.

Storm S. · Answer

@Sergiu Micula I would only do 3% but make sure you have to get a loan you can recast that way you can keep your same interest rate (in case interest rates rise) and you want to lower your monthly payment when you move so the property will cash flow.

Roman Wippel · Answer

I would take the 3% either way and let the tenants pay the rest (Mortgage) to invest in other properties.

Michael Noto · Answer

Does the property need any immediate rehab? If so, that 7% may come in handy.

Account Closed · Answer

Personally, I'm against putting more money than necessary. Leverage is a blessing given to us and there's no need to pay off these assets faster than the banks require. If I were you, save that cash and try and use it to purchase another property. If the fourplex increases in value you can use it as collateral

Sergiu Micula · Answer

Can you expand on this?

Steven Ko · Answer

i know bp is all about leverage and growing as big and fast as you can. But I like to air on the side of caution.  Don’t forget leverage cuts both ways. No deal is better than a bad deal.

Sergiu Micula · Answer

@Theresa Harris this was very helpful. Thank you!

Sergiu Micula · Answer

It doesn't need much. Had a new roof put on about 5 years ago, new windows about 8 years ago, newer AC units. I walked through the property as well and everything looked okay. But, I understand your point and agree that that extra cash could be very very helpful, especially because this would be my first property.

House hack: I only need 3% down, but should i put down more?

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