20% down with 4% interest or 25% down with 3.5% interest?

5 Replies

Looking to buying a first investment property, and we were curious if it makes more sense to put in more money down for a lower interest rate or save that extra money to jump start the next investment property purchase. 

The property will cash flow either way. 

Hey @Joshua Sun !  Congrats on getting into it!  I am no expert, but I would say it depends how long you plan on holding the property.  If long-term buy and hold, I would say try to lock in the lowest rate that you can.  You or your lender should be able to calculate the interest savings over the life of the loan if you choose 3.5% vs 4.0%.  Unless you can make more than the interest savings with the money you wouldn't put down, I say go for the 3.5%.  Just my two cents!  Good luck!

You’re getting a guaranteed 10% return on your additional downpayment. Unless you have plans for it you would certainly use it as DP. Want to save a boatload of money? Make the 20% down 4% interest loan payment amount towards your 25% down 3.5% interest loan. 

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@Joshua Sun personally I would put the minimum down payment and pad my reserves instead and/or earmark the difference for my next property. Limit your out of pocket costs so you can grow. Good luck with your decision.

@Joshua Sun

Generally 20%/4%. Keep your money if it’s a larger loan. If it’s a smaller loan and 5% additional down is a few thousand I’d probably do that. If you’re talking about another $30+ down I’d go with the higher rate. You decide where you draw that line.

@Joshua Sun one way to look at it is to decide if you want to have 1) more cash flow per property with fewer properties, or 2) more properties with smaller cash flow for each one. If you have more properties with smaller cash flow for each one, you may be able to build up a larger net worth over time because you're leveraging your money more and you have more properties to appreciate. But if your goal is cash flow and you want to limit your risk (by having less leverage), then it might be better to have fewer properties and each one have more cash flow. Having fewer properties with more cash flow per property will also get you to your cash flow goals faster. Another thing to take into account is how much cash you have available. If you have more cash available, then maybe it makes sense to put more down and go with the fewer properties more cash flow option. But if you don't have a lot of cash, then maybe it's better to leverage more with a lower down payment.