Real Estate Professional · South Jordan, UT · Member since 2016 · 22 posts · 2 votes
Hello Everyone!
I'm a beginner here just slowly learning so i don't ruin my life on my first deal, so thank you all in advance. My question has to do with running the numbers to valuate a potentially "good deal"
I've been reading about the 50% rule which makes great sense as a guideline. My question is about a downpayment, and how that should be factored into the numbers. i.e. if you only put 3.5% down and are cash flowing after the 50% rule that seems like a good deal to take a closer look at. But what if someone wants to avoid PMI and put 20% down? or possibly more? what % of cash flow would you suggest is a decent amount on the principle?
Say i find a single family home for $300,000 and put $60,000 down (20%). As a rule of thumb what is the cash flow % on your equity should you expect if you're following the 50% rule?
Real Estate Investor & Coach · Boston, MA · Member since 2013 · 1k+ posts · 162 votes
9y
If you are going to be a real estate investor over the long haul, the answer to any down payment question would be “as little as humanly possible”. Over the long run you are going to need as much capital as possible and you want to preserve as much as you can.
Regarding PMI: that is something that goes away over time. If you get a great deal, PMI can be removed shortly after you buy the property if you get an appraisal and have enough equity. The cost of PMI is going to cost you more in the short run, but in the long run not having your capital is going to prevent you from actually being able to do more deals in the future and it is a small price to pay.
Real Estate Investor & Coach · Boston, MA · Member since 2013 · 1k+ posts · 162 votes
9y
I would never strive for ROI in that sense.
Anytime I buy a rental property I am always shooting to make sure that my purchase price is equal to or less than 100 times monthly rents(once the property is in rent ready condition)
What I mean by that is that if you have a property that is in rent ready condition when you buy it and it generates $3,000 a month in rents, than I want to buy the property for $300,000 or less
If I have to put $50,000 into that same property to get it rent ready than my max price needs to be $250,0000 or less.
If you use the rule of 100 and put down as little as possible, you will always cash flow and will be in a good position.