Rental Property Investor · Morganton, GA · Member since 2015 · 31 posts · 12 votes
I apologize if this is such a basic question (starting to learn) but - I have some bookmarks I plan on reviewing (which landed me here) that talks about how to calculate whether a property is good as a real estate investment (rental property) - including how much you should put down towards the down payment.
But - how does that thinking compare/differ with your own primary residence? No income would come "from" it, obviously - so does it make sense to do a shorter mortgage term (15 years) and/or put down a (very) high down payment? Part of that question is also being able to compare that versus, using the difference (especially in the down payment) towards a rental property instead.
I ask because - I'll be coming up to needing to understand which makes more sense - whether to put money towards a (potential) new primary residence, or to use money towards a (new) rental property.
From a very quick glance, it'd seem to make sense to put it towards the rental property since it would (most likely) give me a better return than a lower mortgage payment (and less interest paid) on my primary residence. But I'm wondering where the decision making is done to choose to put money towards one versus another?
Broker / Investor · Tewksbury, MA · Member since 2008 · 1k+ posts · 351 votes
10y
primary residence options allow for LTVs ( loan to value ) up to 97% ( 100% if you're a veteran ) just remember mortgage insurance will be required for any LTVs greater than 80%. This will could be there the life of the loan if its an fha insured loan, even when your LTV reaches 80%. You would need to refi to get rid of it.
Investment properties all require LTVs of 75 to 80 percent.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
10y
My goal is to put down as little out of pocket as possible on rentals, and if I were to buy a new house for myself, I would want (not saying I could) want to pay for it in cash...since all the money a pay (including interest) is a cost that comes out of my pocket. My tenant pays my mortgage for me.
Real Estate Investor · Boston, MA · Member since 2014 · 32 posts · 10 votes
10y
Not all mortgages over 80% LTV require PMI on a primary residence. Just look at all the 5/5 ARM options from credit unions. Yes, maybe its baked into the rate, but it still comes out better than a 30 yr fixed with PMI.
My advice. Put 10% down on your primary residence and dump the rest into a rental property.
Investor · Midlothian, VA · Member since 2015 · 980 posts · 823 votes
10y
There are generally tax benefits to the interest you pay on your primary residence, it depends on your particular tax situation. I look at it like this, though, a lien on your primary residence is some of the cheapest money you can borrow. I would rather borrow it at 4% and invest it at 8%+. It also depends on your risk tolerance. If you can't stomach having your home at risk then you should probably own it outright.
Personally, I prefer to own assets like that on paper vice out right. That is, leverage it to the hilt, but put the money into a relatively safe investment that is earning more than your cost to borrow. The benefit is two fold. One, you are putting that equity to work for you; and two, there is an element of asset protection since you have very little equity in your primary residence which is difficult to shield otherwise while still enjoying homeowner's tax breaks.
That is riskier, though, so you have to do what is right for you. My recommendation is to put as little into your properties as possible with two caveats. Make sure your rentals cash flow, and I mean truly cash flow with all intangibles factored in (vacancy, capital expenditures, etc.). And make sure you can easily afford the payments on your primary residence with a sufficient reserve to weather any setbacks (job loss, emergency expenditures, etc.)