All Forum Posts by: Kevin S.
Kevin S. has started 24 posts and replied 394 times.
Quote from @Stephen DeThample:
Quote from @Kevin S.:
Quote from @Stephen DeThample:
Quote from @Kevin S.:
Hi BP members,
I am looking to invest in a SFH that cost about $400,000. With 20% down the property will negative cash flow $500/mo. It breaks even @40% down. One lender advised me it's better to negative cash flow if I can afford it and still do 20% instead of 40%.
Reason : the additional 20% or $80,000 is better spent towards down for another property (provided of course I can afford twice the negative cash flow) because the annual appreciation @ 5% (which is likely in Florida) will be greater than the negative cash flow per year. That is $6000 negative cash flow for $20,000 appreciation in return. That is still a 17.5% return(capex not included). I don't discount the possibility that the lender gets to finance 2 properties instead of just one but the proposition does make sense on paper and in theory. Does anyone refute this or agree with it? Am I missing anything? Thanks in advance.
This is sometimes a matter of comfort for the buyer. If putting 40% makes you feel secure and you can afford it, there is nothing wrong with that. This is a common thing for investors who do not want to worry about the future.
If you are looking to build a portfolio of homes still, then it might make sense to buy 2 at 20%. It comes down to your level of comfort and should never be push on you, just offered as advice.
Thank you, Stephen. Since you are a real estate agent (and if you work with investors) what are you seeing in your market? Are investors putting more than 20% down in the current market? If so, what percentage of them are doing it and what percentage are able to keep it @ 20%. Would love to hear from all real estate agents on BP. I might post this question by itself on another post, actually. Thanks.
I have a few that always do it. Even 50% at times if they really want the A class neighborhood. Most investors try to leverage into more properties or keep the extra cash for reserves, which is also a "feel good" safeguard.
50%. WOW!!
Quote from @Stephen DeThample:
Quote from @Kevin S.:
I don't disagree with you. Where I am at I cannot find any property with the 1% rule. Properties do not cash flow with 20% anymore here. Suggestions?
Try MTR (medium-term-rentals) or rent by the room (house hack with or without you in it). They can make the cash flow even or positive.
I attended a seminar on Padsplit and ever since I am getting emails from them about Padsplit properties on sale. Needless to say, the cap rate and COC are better bc of rental by the room. I am not sure if I want to buy them and end up paying more compared to me buying a regular property and converting to Padsplit myself.
Quote from @Stephen DeThample:
Quote from @Kevin S.:
Hi BP members,
I am looking to invest in a SFH that cost about $400,000. With 20% down the property will negative cash flow $500/mo. It breaks even @40% down. One lender advised me it's better to negative cash flow if I can afford it and still do 20% instead of 40%.
Reason : the additional 20% or $80,000 is better spent towards down for another property (provided of course I can afford twice the negative cash flow) because the annual appreciation @ 5% (which is likely in Florida) will be greater than the negative cash flow per year. That is $6000 negative cash flow for $20,000 appreciation in return. That is still a 17.5% return(capex not included). I don't discount the possibility that the lender gets to finance 2 properties instead of just one but the proposition does make sense on paper and in theory. Does anyone refute this or agree with it? Am I missing anything? Thanks in advance.
This is sometimes a matter of comfort for the buyer. If putting 40% makes you feel secure and you can afford it, there is nothing wrong with that. This is a common thing for investors who do not want to worry about the future.
If you are looking to build a portfolio of homes still, then it might make sense to buy 2 at 20%. It comes down to your level of comfort and should never be push on you, just offered as advice.
Thank you, Stephen. Since you are a real estate agent (and if you work with investors) what are you seeing in your market? Are investors putting more than 20% down in the current market? If so, what percentage of them are doing it and what percentage are able to keep it @ 20%. Would love to hear from all real estate agents on BP. I might post this question by itself on another post, actually. Thanks.
I don't disagree with you. Where I am at I cannot find any property with the 1% rule. Properties do not cash flow with 20% anymore here. Suggestions?
So you agree with me the cash flowing property is hard to find post-Covid. Almost feel the conventional math no longer applies to current properties and appreciation in mostly what one has to depend on. Or buy in areas further out with less demand.
What's the alternative?
Thanks for your comment, Mark. Cannot disagree that it's entirely possible.
Quote from @Ned J.:
So your negative cash flow is based only on PITI?
So what do you numbers look like when you have to replaced that 2k hot water heater....or that 6k HVAC...or have a tenant turnover? They are MUCH worse .......
Buying solely based on appreciation is speculation.... not RE investing. It can be done....with bigger pockets in certain markets.... but with much bigger risks. Not a great idea for a newcomer with more limited resources. Appreciation is the icing on the cake.... not the cake itself.
Dont sink more DP into a property to buy "cash flow".... the only time you want to go with a higher DP is if it is needed to get better terms on the loan like lower interest rate, no PMI etc....otherwise keep your $$ and use the banks money
Like many others here you are correct too! Appreciate your input. I guess the money to fix hot water heater or HVAC will come from the $80K that I won't be adding. Thanks.
Quote from @David Ross:
Others have touched on this but you have to really consider the value of that extra 20% to you and your future plans. If it's not necessary to tie up that money, then hang on to it.
The only other thing I would want to look at in your shoes is what 25% down looks like. There are scenarios where 25% down offers considerably better terms on an investment transaction. In these scenarios, it often can make sense to put that extra 5% down.
Good luck!
Thank you. I wasn't aware of that. Now I know and will inquire with the lender. Appreciate it.
Quote from @Crystal Smith:
Quote from @Kevin S.:
Hi BP members,
I am looking to invest in a SFH that cost about $400,000. With 20% down the property will negative cash flow $500/mo. It breaks even @40% down. One lender advised me it's better to negative cash flow if I can afford it and still do 20% instead of 40%.
Reason : the additional 20% or $80,000 is better spent towards down for another property (provided of course I can afford twice the negative cash flow) because the annual appreciation @ 5% (which is likely in Florida) will be greater than the negative cash flow per year. That is $6000 negative cash flow for $20,000 appreciation in return. That is still a 17.5% return(capex not included). I don't discount the possibility that the lender gets to finance 2 properties instead of just one but the proposition does make sense on paper and in theory. Does anyone refute this or agree with it? Am I missing anything? Thanks in advance.
The only time we take a bet on a property with negative cash flow is if we have a way to force up the rents or we can force appreciation through improving the property. We would also have to get the property with little to no money out of pocket. As a real estate investor and business person, I'm not going to rely on appreciation to make up for a negative cash flow unless it's nothing down deal.
Thank you and I see your point. At this time I don't have access to that kinda properties yet!
Thanks for the vote. And how are you doing this in Jax while in San Diego? Well, I am just talking to myself. No need to answer it for obvious reason :)