Putting Additional Money Down After Purchase

[Ian H.]

I am working on getting the hang of doing cash flow calcs in preparation to buy my first investment property. I am trying to be extremely conservative in the numbers I use but I know this is obviously more of an art than a science. In most cases, I have the cash to buy the property outright but am considering a mortgage in instances where ROI is higher if I use some amount leverage.

My thought process is that if I can find a property with better ROI with leverage vs cash then this would be ideal because I also get the tax benefits and keep extra cash for future investments or enhancements. My concern is that my margin for keeping a positive cash flow will be lower if I choose to go leverage instead of cash. To me, it seems then, that the safest way to go about it would be to get the mortgage but then keep enough cash on hand to pay down the rest of it, at least initially until I get a feel for what the actual cash flow will be. That way, if somehow I screwed up the numbers or something unforeseen happens I can pay off whatever amount of the mortgage I need to in order to get cash flow positive. If it turns out everything looks good then no harm no foul and I can deploy that "safety net" cash somewhere else (maintenance already is factored into my cash flow calc). Obviously if I DO end up paying more of the mortgage down with my cash then my ROI goes down BUT I should be able to get the cash flow positive, which seems like the most important thing.

Does that all make sense? Do people do this? I don't want to use this an excuse to get into a poor investment but it would make me feel better knowing I can bail myself out if cash flow somehow ends up negative. It would give me more confidence in a scenario where I found an opportunity where cash flow with leverage was lower than i'd like but ROI looked good. Thanks!