At what down payment would you want a property to cash flow +ve?

14 Replies

Hello,

I understand that the answer to this question depends on the local market.  High cost areas, like SF bay area, would need higher down payment to have positive cash flow and vice versa.

That's why I am curious about what investors in different parts of country consider a good down payment %.

Please mention the state and city.

Thanks,

@Animesh Das Most investors want to leverage as much as possible and keep as much cash as they can for other investments. I personally would not pay a bigger down payment just to make a property cash flow. If it's not a deal with minimal down payment, I wouldn't throw more cash at it on the front end just to make the numbers nicer when I could find something else that I would not have to do that with. Maybe other people will do that, but none that I personally know.

If it doesn't cash flow 100% financed, it doesn't work for me. If your investing for cash flow and you have to "buy" cash flow in the form of a down payment, its not a good investment.

True cash flow on a property can only be calculated based on a hypothetical 100% financing. If a property can not cash flow at 100% then it will never have true positive cash flow. DP/equity is buying cash flow that is not directly generated by the property itself.

At a certain point your cash/equity will be generating 100% of the cash flow turning the property into a liability.

At a opportunity value of 10% every 100K in equity draws $866 off the top of your rental income before any other deductions.

Like Jason I do not invest in any property that can not produce positive cash flow on it's own merit. I do not believe in investing in artificially generate cash flow and calling it "positive". It is not positive cash flow it is purchased cash flow. Big difference from my investing perspective. My money can do better outside of real estate.

In Silicon Valley/Bay area you will need at least 40% down to cash flow.

@Animesh Das Personally, I think the less down payment you can put down, the better. I don't believe in putting big chunks of money down in order to chase cash flow. In doing so, all you're doing is driving your COC ROI down. I don't see the point of making a big down payment only tp have a 3-4% COC return. That's why I like affordable markets like Indianapolis and Kansas City where you can still get COC return and cash flow on a minimum 20% down.

Unless you are living in it try to evaluate with 20% down, because unless you have found an amazing lender you won't be able to purchase the property for less than that.

We want it to cash flow with no downpayment, although it's a little easier to do that in KC than in California.

I didn't think 100% financing was possible on rental properties? Don't hard money lenders even require some sort of skin in the game? Or is the 100% financing mentioned a 'by the numbers' example. I'm new and trying to understand also.

@Jason DiClemente 

@Thomas S.  

@Andrew Syrios  

Thank you for your response that a a property needs to be cash flow +ve with no money being put as down payment. 

This has 2 follow up questions, 

1) Do you consider appreciation as a factor at all when considering a investment property? Or is appreciation just icing on cake that, if it happens then great, else you don't care about it?

2) why would a seller sell a such a good investment property? I would think that everybody would like to hang on it.

Thank you for your insights.

@Animesh Das I consider appreciation some, to the extent that I wouldn't invest in a depreciation area. I'm investing for cash flow to replace my job so that is my #1 focus right now. People sell good investments for a number of reasons. Being a landlord can be hard, and people get tired of it. Maybe they are looking to retire and cash out. Maybe they are selling when the market is high in anticipation of being able to buy when low.
@Devante Boll not necessarily no money down, but no money invested. So using the BRRRR, all money cashed out after refinance.

For me, I think it would be ideal to get cash flow at 100% financing with the thought that if a property was purchased 25% down that it could support the debt load over time if it appreciates and could be refinanced for 100% of the investment.  

For the areas where you need a big chunk of cash to get a property to cash flow, the return on the investment is very low and I'm not sure what the point in investing is unless you are just hoping the property continues to appreciate.  Personally, I don't plan to invest in RE with the thought that something may appreciate.  If I was in some of the markets described, I would look for another market to invest in, or throw my cash into retirement accounts that will provide for a much higher yield than what you can get renting with a substantial down payment.  

Why work to own real estate for a low return when you can make more without doing anything in the current market?  I understand the stock market fluctuates, but owning RE for a low return isn't a good decision long-term either.

@Andrew Syrios

1) Appreciation is not a factor when investing, I invest for cash flow, I do not speculate.

2) **** happens, life changes, Plenty of reasons for moving on.

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