Is PMI/MIP the ultimate deal killer?

Question

Hello all, and thanks in advance for any help.

Been analyzing many properties lately and seem to have found some good deals, but the rental property calculators never include PMI/MIP (Private Mortgage Insurance) when buying a property at 3%/3.5%/5% down. Is there something I am missing or how do you guys go about it when analyzing? I tried to put in a rough estimate of PMI into the Custom Expenses and it destroyed the deal into negative cashflow and ROI.

I've also never seen Brandon Turner really talk about PMI when analyzing deals live on webinars at 3% or 5% down which confused me.

Are there any tricks to avoiding PMI/MIP or am I missing something? Perhaps targeting multifamily homes to start to offset that or aiming for 20% down?

Thanks for any suggestions or info!

- Matthew Pettit (newbie REI)

Damian Bialonczyk · Answer

@Matthew Pettit

What are you using for your PMI estimates when you analyze your deals?

Generally speaking it’ll always be more difficult to cash flow positive when you’re putting down a lower downpayment, compared to putting 20% down. And PMI makes it even more difficult. But personally I always try to put down as low of a downpayment as possible. If it’s a cash flowing deal then lower downpayment means better ROI and more capital for the next property.

Aaron W. · Answer

@Matthew Pettit PMI will need to be built in to your analysis when you are not putting down 20% or more. You could partner with others or use private money to get yourself above the 20% threshold.  You'll want to do a cost/benefit analysis of using other people's money to take down deals.

Best of luck!