Wife and I will have roughly 150K to put towards a house downpayment late fall of this year. This will be our primary home. House cost will be around $500K. We hope to eventually get into the real estate market to generate some passive income.

A few questions:
Should we throw all 150K at the house downpayment? We are weighing doing a 15-yr vs 30-yr mortgage.
Should we reduce our downpayment to just 20% and save the rest towards the rental properties.
We should be able to save roughly $50-75K/year towards rental properties.

Watching as I'm growing interested in rentals as well and curious as to peoples comments

Something to keep in mind for retail conventional financing for investment properties if you plan on financing:
- Single family/1 unit properties will have a 15% minimum down payment requirement, PMI won't cancel if you put down less than 20%
- Multi-unit/2-4 unit properties will have a 25% minimum down payment requirement

Financing aside, is there a conventional wisdom angle... Seems higher equity would be favorable as the interest is a direct hit on ROI.

Kenneth_2003 said:

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Financing aside, is there a conventional wisdom angle... Seems higher equity would be favorable as the interest is a direct hit on ROI.

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Depends on the length of the hold and the cash flow potential.

A lot of times its best to capitalize on a shorter term when return hurdles are met. If that's the case, shelling out a bunch of money to pay the debt down each year might not necessarily be a good thing if the debt is cheap enough on the front end.

What's your kid situation?

Are you in a market where you can get most of what you want in a house for $400K?

Mackwayne9434@gmail.com

Depends on your debt ratios and savings rate


You need cash to by rentals bc 20% will likely be expected. You also want low debt ratio so you can buy an investment home as soon as possible. After two years as a real estate pro (landlord) the rental will start counting in your favor. Until then you are stuck with just the PITI of the rental (income is not considered.)

Given the current level of mortgage rates, and the ability to deduct, I would borrow as much as I can and keep my cash free for other uses.

[soapbox] That being said, I also don't love single-tenant residential properties as an investment because of the binary income stream on short term leases. I realize its the easiest way to get started in real estate, but there are other alternatives out there in commercial and multi-tenant. [/offsoapbox]

If you are going to max out your borrowing, consider the scenario that a tenant trashes your house and it takes you 3-4 months to get it fixed and leased again. The lack of rental income coupled with the repair outlays, could sink some people if they are running too tight.

Also, consider starting relationships now with a small, local bank (not a bank mortgage department). With the kind of free-cash flow you are talking about above, you might be able to get a more commercial loan, and avoid the dumpster-fire that is the mortgage market and all their underwriting requirements. Also, a commercial bank will allow you to hold property in an LLC, which can have a lot of advantages.

Definitely need to get an LLC. I posted my email once you reply we can discuss the options.

If it is conventional loan you are paying PMI. It's is being paid by the rate offered

To Bitters comment a one off rental is risky but is mitigated by multiple properties. I recommend investors treat rentals as a side business. 5-6 properties will diversify cash flow and even better if you buy duplexes.

If you use an LLC keep in mind you will not get the best rates due to you cannot use them for conventional financing. You need to work with a traditional bank who will still make you personally liable. I suggest over insured vs LLC at first. An umbrella policy gives most of the advantages as the LLC.

Get a duplex or quadplex and house hack it, do that every 2 years then retire in 6 years.

coleasterling said:

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Piggybacking, what about putting well under 20% down in a similar situation? We have about the same for a down payment and were pre-approved around $450k with as low as 5% down with no PMI.

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What's the interest rate? That's a key piece of the puzzle.