Another Newbie ? relating to financing the deal

[Burke]

Aloha all!

To refresh everyone's memory, my beginning strategy is one of "buy and hold" SFH rental property for long term income generation. My current focus market is San Antonio, TX. For now, I will be a long distance owner.

I have enough cash on hand or available in the next 6 to 8 months to cover closing costs and put at least 20% down on two houses in the price range I am looking at. I realize that the more cash I put into the deal up front, the less ROI I will see but I will avoid PMI or 2nd mortgage pmts with at least 20% down. Lower up front investment will also decrease monthly cash flow though.

So my question:
If it isn't obvious, I would like to hear your thoughts about the pros and cons of putting a full 20% down vs. something less. Maybe it really just comes down to the numbers of each particular deal but I thought I would throw this out for general discussion and see what kind of response I get.

Thanks in advance for your responses!

Burke

[Jim FL]

Aloha all!

To refresh everyone's memory, my beginning strategy is one of "buy and hold" SFH rental property for long term income generation. My current focus market is San Antonio, TX. For now, I will be a long distance owner.

I have enough cash on hand or available in the next 6 to 8 months to cover closing costs and put at least 20% down on two houses in the price range I am looking at. I realize that the more cash I put into the deal up front, the less ROI I will see but I will avoid PMI or 2nd mortgage pmts with at least 20% down. Lower up front investment will also decrease monthly cash flow though.

So my question:
If it isn't obvious, I would like to hear your thoughts about the pros and cons of putting a full 20% down vs. something less. Maybe it really just comes down to the numbers of each particular deal but I thought I would throw this out for general discussion and see what kind of response I get.

Thanks in advance for your responses!

Burke

Burke,
I do think it comes down to the numbers on each deal, in total evaluation....meaning, the market will dictate if 20% down, or more, and what you are buying in that market, whether or not its a good idea.

Think about this scenario in a market made up in my mind for example purposes..........
A $500k property, rents for $2500/month.
You buy the place, for a low price, say $400k, with 20% of that down, so you are in for $320k.
Nice equity spread, sure.
BUT, did that 20% help the cashflow?
Nope, because even with low rates, expenses for the property certainly will outweigh the $2500/month in rent collected.

BUT, another scenario.............

You buy a house worth $100k, for $80k, with your 20% down.
Market rent on this one, is $1k/month.
Since you are in for $64k, even with a high rate loan, you will cashflow really well............because your payments should not be any higher than say $650-$700/month PITI.
However, what if you were to buy a few houses, for that price range and lower, in a market where they will cashflow, with only 10% down.......could you buy more?
Would $300-$400/month in cashflow on two make more sense than say $250-$300/month on four, five, or more properties..........

or
You get into a property for less than value, because it needs repairs to be 100% rentable etc, and do so with no down, or low down financing......using your cash to clean up, and maintain the deal(s).........which is a better return?

So, my vote/answer to your question is yes.................

it really just comes down to the numbers of each particular deal.

HTH,
Jim FL