Cash Flow Expectations on Low Money Down Deals

[Nick Gray]

My main impetus for jumping into the real estate investing game is the potential for (near) passive income and the financial freedom that it brings. Thus, I am only interested in deals that cash flow positively. However, I am currently looking for a duplex to house hack on an FHA loan (3.5% down) and I recognize that the 96.5% LTV and PMI will make positive cash flow, even when I eventually move out and rent both units, more difficult than if I had a conventional mortgage.

The more cash flow the better of course, but is it likely that I can find a positive cash flow deal with such low money down? Should I instead be satisfied with deals that, under FHA loans, are break-even from a cash perspective and then, once re-financed into conventional mortgages with 78% LTV, cash flow positive? In case it is relevant to this discussion, I live in a semi-expensive Northeast market (Seacoast New Hampshire).

[Paul Haviland]

You point out the obvious, the lower your debt on the property, the greater your cashflow (all else equal). If you are strictly looking at cashflow per door as your metric, your best option would be to pay cash for your properties.

This is why a lot of people look at cash-on-cash return because it takes into account the financing you are able to attach to a given deal.

I also live in a reasonably expensive market, and if I could finance 100%, break even (after my very conservative underwriting), I would likely purchase the property.

Good luck!