down payment or no down payment?

Question

Ok, here is my situation.  I'm looking at buying a 4 unit apartment building for $85000.  The total rents are $2225.00 and taxes are 1500 per year.

Up here in the great north, (Canada) I have the option to 100% finance this deal but the cmhc fee is 5-6%.  Should I pay the 20% down to avoid this fee or keep my money to invest in another property?  The 100% financing mtg can go for 25 years at about 6.5% locked in for 10years.

I want to use the 100% financing so I can buy the property for $3000 in legal costs instead of $20,000 ($17,000 down pmt/$3000 legal).  Am I missing anything by going this way?  The mtg pmt will be a bit higher but I figure I can offset this cost buy using the difference in the down payment money to buy more units.

Does this make sense, or am I setting myself up for trouble down the road.

Steve

Michael Rossi · Answer

I disagree with this. Rents can go up, down, or stay the same. In addition, expenses ARE going up, so you NEED the rents to increase just to keep the cash flow even. This whole idea that rents "will" increase and so will your cash flow is just plain wrong.

Mike

Les Michaelson · Answer

Buy it no money down if it positive cashflows and save the extra for repairs and to buy another one or to pay the mortgage if you have a vacancy. Down the road the rents will increase increasing your cash flow.

Timothy W. · Answer

Buy and hold is a long term game and trust me....you need cash at the wierdest of times.  I just had to drop $1,500.00 on crap last week that I had no idea about.  Provided it still cash flows, I'd like to have the cash available for unforseeables.  Plus, couldn't you buy another 4 flat quicker if you kept the 17k?  I don't know how CA financing works...

down payment or no down payment?

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