Does 20% Down Killing Scalability?

Question

I’ve found the general advice is that more liquidity creates more opportunity.

But in real estate, less money down usually means higher rates and tighter margins.

So it feels like a tradeoff between scalability and cost of capital.

For those scaling, what creative structures have you used to preserve liquidity without killing cash flow?

Kevin Sobilo · Answer

@Austin Johnson, a couple thoughts:

1. There is no real way around this issue. That is not a problem, its just a truth/reality.

If you put less down, your payment will be higher, cash-flow lower, and loan terms likely less favorable on top.

2. What is your focus NOW?

If you are farther along in life and your real estate investing career, you might be ready to focus on cash-flow so that you can reap some of the rewards of your effort without divesting your portfolio. You might acquire properties with larger down payments, or refinance properties into new long loans WITHOUT taking any cash out, or simply re-amortizing loans to stretch out payments.

3. You can change course! As alluded to in #2, you can take properties you put little down on earlier in your career to focus on growing faster and later on adjust the financing to change focus to cash-flow later!

4. Interest only. You do sometimes see advertised some loans where you pay only interest for a period of time. That would preserve "cash-flow", but its also not without sacrifice.

If you don't pay down the principle later on when you REALLY want/need more cash-flow you still have the same principle to pay on. So, you cannot refinance or re-amortize loans to increase cash-flow later.

5. Evaluate we are in the boom/bust of real estate cycles, where you are in your real estate career, and where you are in life itself to determine whether you want to focus on aggressive growth or on cash-flow.