Would you put 50% down to buy unlimited properties?

Question

In the recent Biggerpockets.com/Memphis Invest Real Estate Investor Study, one of the pieces of data that came from the conclusions in the report was that real estate investors who planned to purchase more property would be willing to pay higher down payments.

32% of real estate investors - THAT IS 1 OUT OF EVERY 3 - said they would be willing to put 50% down in order to get unlimited financing.  That number is astounding and clearly shows that today's investors are not speculators.  They are serious about leveraging each dollar that they can in order to build while prices are still depressed.

Are you one of the 1 out of 3?  Would you be willing to put down 50% to be able to leverage more than 10 properties with FNMA?  If not, what would be your threshold?

Joel Owens · Answer

I agree with Mitch.It depends on what you are going after.

If you are talking someone who owns 10 houses already and can't get financing and keep wanting to buy 40k dumpers putting down 20k then yes that might appeal to some investors to keep acquiring inventory.

As the price of the property increases it doesn't make sense to dump that much cash down to me. You could simply go into commercial properties,buying businesses etc. which will yield a greater return and more leverage.

So for little properties with small price points I see it working.

Mitch Kronowit · Answer

50% down out here in California is going to limit me to one house every 5 years! No thanks.

Jon Holdman · Answer

Chris Clothier the lender I have in mind isn't as strict as what you describe.  A friend, who had no relationship with this bank at all, decided he wanted to buy rentals.  First bank made him four loans all in very short order on roughly the terms I describe.  Another friend has over two dozen rentals financed by these guys.

Now, you are fully correct that these deals are few and far between in the sense that few banks are doing this kind of lending.  And these are strong borrowers with money for down payments.  And, AFAIK, they only lender when the borrower and property are here in this area.  But lenders are out there who are doing loans.

I also do not believe there are any signficant deposit requirements.  Checking accounts and such, sure.  But nothing equal to an additional 25% of the purchase price.  So the cash required is significantly less than would be required for 50% down payments.

But fundamentally I think you are correct.  There is a lot of cash out there on the sidelines looking for a place to go.  My friend (the new landlord above) says its "fear and greed".  We're fearful of investing in the wrong thing, yet too greed to accept money market or CD rates.   Real estate can still be scary, but it is at least "real."

Dale Osborn · Answer

Chris Clothier I did read the study when it came out yesterday.

Chris Clothier · Answer

I think you would fall into the 33% who said 25% would be their threshold!

Which is great by the way.  I think it is great to bring up the fact that investors would be ore active if given certain conditions.  Some would be willing to put in more to be able to purchase more and others would be willing to put in less.

Did you get a chance to see the study?

Chris Clothier · Answer

I put FNMA into the question on here, but it is not part of the survey.  Most investors are familiar with FNMA and their guidelines and FNMA will lend regardless of where the investor lives or where the property is located.  These are the results of the survey.  They don't reflect how either Josh or I feel.

But, I do hear it more and more from true investors who are looking for places to invest cash.  They like the security of FNMA backing, they like the rates and the relative ease of financing deals.  And, Yes, the survey results showed that 32% of investors would be willing to put 50% down to qualify for unlimited financing.

I think your statement about getting all the fixed 15 year loans at 25% down you want is a bit broad and not entirely accurate.  While there are people who get what seems to be unlimited access to loans (I too know investors getting a lot of loans), they have a few traits in common.

1. Those types of deals are few and far between.
2. Lenders are not lending on property in any state regardless of where the borrower lives.
3. They have significant resources that they must keep in the bank in order to qualify for those loans.  
4. The pre-existing nature of the banking relationship helps tremendously.

And even with these favorable conditions, often times they are asked to put more than 25% down and there is a limit to the number of properties those lenders will hold.  So that type of loan is not available to just anyone and when you take into consideration the money that has to be left in the bank, that money is tied up and not available - earning less than if you used it to build equity.

In the end, 32% of investors said they would put 50% down in order to have unlimited access to loans.  Of course, 33% said their limit was 25% for unlimited loans.  The rest either didn't have an answer or landed somewhere in the middle.

Dale Osborn · Answer

One of the main attractions of real estate investing is leverage. Putting up 50% does not fall into what I would consider leverage of your money. 25% is much more reasonable.

Jon Holdman · Answer

What difference would FNMA make over a portfolio lender?  Do you really mean would you be willing to put 50% down to get 30 year fixed loans?  Because with the right portfolio lender you can put 25% down and get all the 15 year fixed loans you want.  I know people doing it.

Chris Clothier · Answer

That was a funny response...and much of this is relative to where you are investing.  Obviously, the respondents were long-term buy and hold investors.  We have to remember too that the median investment home price is close to $100,000.  So given that data, unless you are investing in out of state areas, you are correct, it may not make sense to put up to 50% down.

Question is, if you were investing for long-term buy and hold in California, would you be willing to put down more than 25% to qualify for 11+ homes with FNMA?

Would you put 50% down to buy unlimited properties?

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