Can I cash flow at 5% down?

Question

Hi all!

I am concerned about not being able to find a property that can cash flow with 3.5-5% down. I am going to be investing near Cleveland when I graduate in 2023 and my price range is $150-$200k for a multi-family.

Would it make more sense to wait until I have enough for 20% down? Or has anyone been able to find cash-flowing deals with a lower % down payment?

Any advice would be greatly helpful.

Thank you!

Ben Sulka, aspiring real estate investor

Patrick Drury · Answer

@Benjamin SulkaSince it's going to be 3.5-5% down I assume it will be an owner-occupant duplex. It probably won't cash flow since you will be living in one unit and renting the other out. You probably could break even which is still great and only put down 3.5-%. If you want a cash-flowing rental then wait till you have 20% down. You should be fine though with 3.5-5% down in Cleveland.

Andrew Duna · Answer

Hi Ben! So yes, as other have also mentioned-- the typical minimum down payment for an investment property is going to be 25% down. So knowing this and your down payment - this would be a house hack- at which point breaking even and living for free is a pretty sweet deal. To answer your question with regards to other investment properties- yes. Most Cleveland properties in "rental neighborhoods" will cashflow with 25% down.

A few things I would add. The amount of closing costs on your house hack property are going to surprise you. It's typically going to match the cost of the 3.5-5% down payment so just be mentally prepared for that. A good strategy you might consider if you plan on continuing to invest in real estate is finding a property that has sat on the market for a while and maybe needs a little work. In this case-  you can submit an offer where the seller covers your closing costs and you'll have a chance to get your feet wet with renovations- either by doing them yourself or gaining experience interacting with contractors.

I'm not sure how you plan on qualifying for a property. If you will have a W2 once you graduate then a conventional lender will work great. But if you go into any sort of sales job or self employment then make sure to talk to some "private" lenders because you'd be surprised at the different ways they can get you qualified- and although the interest rate on these unconventional loan products might be a little higher... its a lot better to pay an extra $100-150/m towards your own equity rather than continuing to pay $800/m in rent for 2 years while you wait to become conventionally qualified.

If you'd like help with any of this then I'd love to connect as I am an investor focused agent here in Cleveland.

Muhammad Amawi · Answer

Hey Benjamin,

I would have to agree with Patrick here. The most likely scenario would be a house hack situation where you end up around the break even point. The Cleveland area definitely has some gems that would allow you to find a great deal under those circumstances. Let me know if you have any questions on the financing side of things or need any connections in the Cleveland area

Adriaan Sierra · Answer

Just make sure that you can cover your costs going forward. If you are cash negative then you are banking on appreciation to make your money's worth. This can obviously work, but you are front-loading the risk. I respect the hussle though, hope you do well :)

Eliott Elias · Answer

Look at your monthly payments to the bank every month with PITI and see if that’s less than your rents coming in

Benjamin Sulka · Answer

Thanks for the response, Joe!

Adriaan Sierra · Answer

At the numbers that I have seen you would not be able to cashflow at anything below 10%.

With such a low down payment you would need to buy insurance that would eat your margin up.

Anything below 20% gets tricky.

James Wise · Answer

To get a property with that down payment you'll need to live in it. It's definitely not going to cash flow in a traditional sense, but it doesn't need to cashflow to make it a great investment.

You need a roof over your head. In order to get a roof over your head you have to pay a mortgage. Do you want that mortgage to be your landlord's mortgage, or do you want it to be your own mortgage? Of course you want it to be your own mortgage. On top of that, you'll have tenants paying down your living expenses. It's a can't lose scenario for you.

Joe Stout · Answer

You can most definitely find this! Im invested in Port Clinton around the way. I've seen lots of rentals around there on the market that would work as cash flowing rentals! Keep analyzing and you will most definitely find one that checks your boxes...

Benjamin Sulka · Answer

Just looking to do a house hack for my first deal so it doesn't necessarily have to cash flow. Trying to get my feet wet! Thank you for the response, Adriaan.

Can I cash flow at 5% down?

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