Ratio/Percentage Rules of thumb for down payment vs cashflow
Hey BP community,
Love this site - I've learned so much. A question since I know I've missed it...
If I pay all cash for a buy-and-hold property to achieve positive cash flow (i.e. in markets where home prices are high), is there a rule of thumb that helps determine how much down payment you should put in to achieve positive cash flow?
Theoretical example:
Let's say I buy a property somewhere for $100K cash and it rents for $1250/month, that means I paid $100k to achieve $1250/month positive cashflow (1:0.0125). If I used that same $100k to purchase 5 separate properties with 20% down on each and they individually produce $250 positive cashflow (1:0.015), is that better or worse than the previous example? Both examples produce the same cashflow overall but the latter introduces debt interest where cash isn't flowing to the investment but to a lender whereas the former does not.
Basically I can put any amount of cash towards a house and get positive cashflow but I'm not clear on whether there is a certain point where investing more cash stops being a good idea.
Does that make any sense?
//adam