Is 20% down required for a rental property?

11 Replies

Hi everyone! I am just starting out and interested in learning how to invest in real estate. I currently live in the Bay Area and have some money to invest but am priced out of this market so my next option is to invest out of state. The reason I am looking at Vegas as a good market for me: short flight from CA, the Raiders move and the exodus of Californians. I would like to get my foot in the door by investing in a rental property in the Vegas market but my first question is if I have enough money to get started. I have spoken to a few loan agents and they have advise that banks typically require 20% down for financing on a rental property. Is this always the case? Hoping someone can provide some advice on how to finance a rental property with as little down. 

Thanks in advance!

You most likely would need 20-25% down for a non-owner occupied investment property. 

But there are other strategies that could get you there! Possible to find a partner that has the cash for the DP. Or if you can find a great deal use hard money to purchase and rehab and then refinance, BRRRR!

Originally posted by @Victoria Elazigue :

Hi everyone! I am just starting out and interested in learning how to invest in real estate. I currently live in the Bay Area and have some money to invest but am priced out of this market so my next option is to invest out of state. The reason I am looking at Vegas as a good market for me: short flight from CA, the Raiders move and the exodus of Californians. I would like to get my foot in the door by investing in a rental property in the Vegas market but my first question is if I have enough money to get started. I have spoken to a few loan agents and they have advise that banks typically require 20% down for financing on a rental property. Is this always the case? Hoping someone can provide some advice on how to finance a rental property with as little down. 

Thanks in advance!

 The minimum down payment for an investment property is 15%

20% down is a good thing. The banks are giving you sound advice that is conservative. Las Vegas was one of the hardest hit areas in 2008 with losses of 45% in value in some cases. If you don't put "skin in the game" why should the banks shoulder all of the risks? 20% down is 20% equity in the property. The market would have to turn down more than 20% for you to be upside down. If you don't have 20% to put down in Vegas, seek another market. You can lend your money and make 8% without buying a property. Why buy and only make 4%?

Like others have said, 20-25% is the norm that banks will require. You might be able to BRRRR but given that you are hundreds of miles away from Las Vegas, that might be hard. You will need boots on the ground that you can trust to oversee rehab. If you hire out everything, as oppose to do some of the work yourself, that will eat into your numbers given the competitive climate.

From my understanding, 25% down payment is almost guaranteed to finance a rental property.  20% may not work on some lenders.

15% down is doable for SFR.

- PMI will be permanent. Doesn't drop off unless you pay the mortgage off, sell, refi, etc.

- The "normal" interest rate hit that investors are used to is about doubled.

It's rarely done. 

More commonly we see folks tap the equity in another property (primary residence, etc) to use as down payment.

@Victoria Elazigue   I know of a 4 plex that looks like a solid 6 cap here in town. Everything else is about a 4-5 cap that ive noticed. You should shop around I know some loan products that you can get for 15% for a rental, but 20% is typically the norm unless your can. How much do you have to invest in a rental property? I know of some VRBOs here as well. 

You'll need the 20% down for an investment property. One thing to think about is Vegas' prices have skyrocketed in the last few years, so there may be more affordable markets. Plus there are a lot of reasons to be cautioned about buying rentals in Vegas--first, just make sure the numbers there work for cash flow. They may not. But there are other markets that would be cheaper.

@Ali Boone  

You'll need the 20% down for an investment property. One thing to think about is Vegas' prices have skyrocketed in the last few years, so there may be more affordable markets. Plus there are a lot of reasons to be cautioned about buying rentals in Vegas--first, just make sure the numbers there work for cash flow. They may not. But there are other markets that would be cheaper.

Yes there are definitely more affordable markets than Vegas at the present time although data suggests that a correction is in the near future for this area. How big of a correction remains to be seen.   

Recognizing that Las Vegas prices have skyrocketed in recent years, I have recently made two real estate bets there based on my perception that (i) prices still have not reached their 2006 peaks and (ii) Las Vegas is primed to grow with the exodus of Californians looking for lower prices and Rust Belt folks looking for economic opportunity at an "affordable" price.  In short, I believe there will naturally be ups and downs but that the U.S. southwest in general and Las Vegas in particular is primed for further growth (i.e. rental growth and price appreciation).  Just my two cents.  

Las Vegas being a Fannie Mae pre-review market, how are you guys able to put only 20% down? I thought pre-review markets required at least 35% down?

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