hypothetical buying scenario

[Jin Kim]

This is a hypothetical scenario. Let’s say

• you have 400,000 you can invest on RE
• there’s property(A) you want to buy. The price is 500,000, And it is expected to go down to about 450,000 in 4 years.
• when you make 125,000 (loan is 375,000) downpayment, cash flow will be zero. when you put down 250,000, you can get positive cash flow (2000 monthly)
• The amount of conventional loan you can get is 37,500 at max.

Here are questions;

1. Which is better? Down 125,000 (25%) and save the rest for later? Or down 250,000 (50%), enjoy the cash flow (.8% ROI), and refinance it when things are ready to buy another property?
2. you have 37,500 left. That would be enough to buy another similar property(B). However, because you already have a loan from the property A, you can’t borrow anymore. Is there anyway you can purchase another property without waiting for 2 years to prove the bank the property (A) is self sufficient?
3. should we still purchase property (A) even when you know it’s completely overpriced and it’s not a good time to buy, because you understand 2 year requirement and you’d like to move on to leverage to purchase another property (B) sooner?
4. Let’s say you bought property (B) after 2 years, and you have 15,000 left for another down payment for property (C). Do we need to wait for another 2 years?
5. After 4 years, it got changed to buyers’ market. However you used all of your money to buy properties A, B, C. if you refinance from property A and B, you will be able to get some cash to buy property (D), but property (A) and (B) will generate negative cash flow. it’s certain that appreciation of (D) will be pretty good just in a few years, following the historical pattern of the cycle. Would you risk to put up with negative cash flow for property (D)’s appreciation value? If so, how much would you borrow and risk?