Multi-Family % Down

[Chris Daliani]

Hello All,

A friend of mine is purchasing his first investment property. It is a 4 family property about to go under contract for 350k.

I am wondering if it is wise to put down 20% or the minimum of 3.5%. He will be owner occupying and does plan to purchase more in the future.

How about 10 or 15%?

[Kevin Yeats]

Chris, There are two reasons why this is difficult to answer.

First, do the other financing terms (interest rate, term, etc) change with the greater downpayment?  Many lenders would offer a lower interest rate with a greater downpayment (the owner has more skin in the game).  The lender may require mortgage insurance on loan with lower downpayments.

Second, aside from lender requirements, financing structure has a large degree of preference involved.  One investor may want to make sure everything goes right with the investment property and sleeps better at night knowing that if property values dip, the bank (lender) will not be calling at all hours requesting another payment.  Other investors want to use OPM (Other People's Money aka leverage) as much as possible under the belief that when the property value increases, the return on his/her small downpayment becomes that much larger.  Neither approach is right or wrong .... just preferences.

A third factor is the ease with which the investor can obtain additional funding should "the deal of a lifetime come across his/her desk."  In such circumstances having liquidity or easy credit will allow the investor to purchase the dream property .... but that deal may slip away if the investor cannot secure funding quickly.

My $0.02