Down Payment Strategies with High Initial Starting Capital

[Kyle Baxter]

Wondering what some of you who have experience in the small-mid multi-family market would do with a fairly large amount of starting capital (>250k) considering down payments. 

Do you prefer going as low as possible in order to leverage as much as you can to push for more volume?

Do you put more than needed down in order to reduce the payments and possibly lessen a vacancy risk/increase cash flows?

Spend less on the down and put more towards renovations/adding value? ( I have zero experience in renovations for some context)

Curious to hear about your strategies and thoughts. 

Thank you.

[Kevin Sobilo]

@Kyle Baxter, generally speaking the less down payment the better over the long run.

If you have a choice of putting 40% down on one property versus 20% down and buying 2 properties think about the difference over the long haul!

Yes, the cash-flow from each property is less when you buy the 2 properties, BUT greater total cash-flow from the 2 properties over the 1 property Im sure.

In addition you have double the depreciation deductions to reduce your taxes and you will have double the market appreciation and greater mortgage paydown over the life of the loans!

Extra equity in a house (via down payment) might make you feel good, but its more of a risk because it can disappear in a bad market, its at risk from a lawsuit that needs to be paid, and its expensive to access that money again via refinance or selling and paying capital gains tax.

You want to be prudent and have sufficient reserve funds, but you don't want to tie up extra money in the property that you don't need to.

If you have extra money, talk to the lender about paying points to reduce the interest rate, BUT figure out the payback period on that reduction and be sure you will keep the loan at least that long.