First time investor need some advice on down payment

[Victor Chalouh]

Hi guys

So I was reading a few forums and newbies just like me were asking if a property’s rent roll would cash flow positively based off of the mortgage price they’ll have to pay (the mortgage price with everything included, taxes, insurance etc).

My question is this - obviously the higher the down payment, the lower your mortgage.

If I were to rent a single family home and take out a loan with 10% down then the numbers probably wouldn’t make sense, whereas if I were to put down 20% then the numbers would change and the property would be cash flowing positively every month.

The person in the forum I was reading about was taking an FHA loan and put down 3.5% on a property but everyone kept telling him that his expenses vs rent roll are almost equal and that it isn't a good investment.

But if you think about it, he only put down 3.5% which basically means that after the mortgage is paid off the house will be his for almost no money out of pocket initially vs what it’s worth.

Can someone pls help me make sense of all this?

[Corby Goade]

You are talking about two different things. Raw cash flow VS CoC return. Your cash on cash would be very high if you put almost nothing down, because your out of pocket expenses are so low. The flip side to that, as you've alluded to above, is that now your monthly payment is higher and your net each month will consequently be lower.

One piece that is seems you might be missing is that when you use an FHA loan, you will be required to pay mortgage insurance, which is not cheap- on a $120k mortgage, it would be about $100 per month. By spending the extra, if you have it, and paying a down payment to eliminate the insurance, you'd likely end up way ahead.