Is this a sound rental investment with 35% required down?

[Cami Gerbmak]

Hi all,

I sure would appreciate any advice and insight concerning my situation. I'm new to the world of real estate investment and learning as much as I can before I purchase. I currently live in Phoenix Arizona and have a primary home with a 30 year conventional loan and 200K cash savings to put towards a rental investment property. My credit score is 815, the only debt I have is my home but my debt to income ratio is high and per my lender I will need to put at least 35% down on a property to qualify (lender is suggesting 7 year arm.)  But doesn't that seem high?? I've known some investors with awful credit only putting down 20%.  What am I missing? I've worked with this lender on previous primary homes and they know I'm a good customer.  Is it because it's for an investment property?  

My goal is to find a property that's turnkey ready and has new big ticket items such as roof and ac. I found a single family 4/2 property (no hoa) in a good rental market area (rents run 2200-2600) that's fully remodeled with new roof and ac at $495k. The comps are running 475-505k but the phoenix market is still overinflated. If I were to purchase this property, I would need to put down $173,250 plus 10K estimated closing = $183,250 (leaving me $16,750 in cash reserves for both homes and unexpected expenses.) My estimated mortgage would be $2152 (P&I, taxes & insurance included) and rents need to be $2440 per lender. So question 1. How much cash reserve on average is best/wise to have on hand for both homes? In my mind, $16,750 seems tight, but it's hard to know what's realistic from an investor perspective. Question 2. If cash flow is break even or possibly $200 each month, is such an investment sound especially having to put 35% down? Many have said if it doesn't make the 1% rule then it's best to walk away. Thoughts? Thank you!

[Joe Villeneuve]

35% DP is a bad investment.  Find a different lender.  Your goal should be to put as little down as possible.  The DP is what your property costs you.  The rest is paid for by our tenant, as long as you have positive CF...and you must have positive CF.  Also, if you have to pay a higher DP to get a higher CF you're not really getting positive CF.  All you'd be doing is paying for all that negative CF upfront.