Down Payment Size for Long Term Rentals

[Troy Hanson]

Hi, I'm looking for advice on purchasing a long term rental.  Real estate continues to be high where I am located and when I calculate the mortgage payment with 20% - 25% down, it only breaks even with the rent I could collect.  My question is, would a down payment at 40% or more be realistic for this type of acquisition?  I assumed I could cashflow for 20% or more, so I want to see if I need to adjust my expectations based on the experience of others.  Thanks.  

I could not find this specific question looking through the first half dozen pages of results when I searched in this forum for this question. 

[Marc Greger]

some ideas:

• - yes you could put more money down upfront, even though it's not ideal.
• - Look for off-market deals that are much cheaper,  using hard money and then refinancing with a rental loan.
• - Find properties where the owner will finance most of it, so you only need a smaller loan with the higher interest for the down payment.
• - Take over a property where you can continue the seller’s lower interest payments.
  - Another thought to give why would you want to do a rental at all, I mean those terms are horrible. why not buy something else with a better return on invest? A note, tax lien, CD... or we could partner on a note and get 5-8%

Feel free to reach out to discuss these ideas!

[Malorie Moore]

Hi Troy!

Of course it depends on the market/price, and of course the more you put down the more cash flow you will get. With the interest rates being a little higher right now most of our investors are putting 30-40% down to make it make sense for them. It all comes down to your strategy as an investor. Everyone is a little different. Happy to chat! Goodluck with what you decide!

[Josh Mitchell]

I’ve been a Realtor in the Idaho Falls area for the past 8 years and our market has appreciated significantly during that time. Given current rates and pricing, finding properties that cash-flow is almost certainly going to require more than 25% down. Prices seemed to have bottomed out post pandemic though as we’ve had stability in pricing for a while now and are beginning to slowly see improvements again. Feel free to message me if you want some more detailed info on the Idaho Falls market. 

[Bradley Buxton]

@Troy Hanson

Yes, you will have to modify your strategy. Gone are the days of low down payments, cash flow, and appreciation. A higher down payment is not a bad thing. It does tie up more liquid capital. If you find a property in a good appreciation area your appreciation will far outpace the monthly cash flow. This is the situation in Reno, NV right now the cash flow is not huge like in the Midwest but the appreciation is strong because there was limited new construction over the last few years. Tax benefits and low property taxes in NV still make "good" deals. If your strategy is pure cash flow then you'll need to look at less expensive properties which might be in a different market. Keep in mind your ultimate goal for investment and does buying at 30-40% fit in that goal. 

[Brian Kloft]

Quote from @Troy Hanson:

Hi, I'm looking for advice on purchasing a long term rental.  Real estate continues to be high where I am located and when I calculate the mortgage payment with 20% - 25% down, it only breaks even with the rent I could collect.  My question is, would a down payment at 40% or more be realistic for this type of acquisition?  I assumed I could cashflow for 20% or more, so I want to see if I need to adjust my expectations based on the experience of others.  Thanks.  

I could not find this specific question looking through the first half dozen pages of results when I searched in this forum for this question. 

Keep in mind that just because 90% of the people on here use heavy debt, it does not mean you have to. There are investors out there that put large amounts down, such as 50% or more and those that pay cash. Obviously the more cash down the higher the cash flow. The up side of low down is that you can buy more properties and get appreciation on more properties. The up side on large down or all cash is you minimize your risk plus fewer properties means less work and less headaches. 3 properties with large debt or 1 property low debt or paid off generating the same or more income as the other 3. Take it another step and you have 9 properties to deal with vs 3. Most people on here think the 3 properties is a horrible way to go but there is a group that goes this way and there is the group that starts off the 9 property way but then stops and focuses on paying them off to be in the little to no debt group and enjoy huge cash flow without as much work and never worry about making a mortgage payment or worrying about having the cash to buy a new roof.

[Marc Greger]

some ideas:

• - yes you could put more money down upfront, even though it's not ideal.
• - Look for off-market deals that are much cheaper,  using hard money and then refinancing with a rental loan.
• - Find properties where the owner will finance most of it, so you only need a smaller loan with the higher interest for the down payment.
• - Take over a property where you can continue the seller’s lower interest payments.
  - Another thought to give why would you want to do a rental at all, I mean those terms are horrible. why not buy something else with a better return on invest? A note, tax lien, CD... or we could partner on a note and get 5-8%

Feel free to reach out to discuss these ideas!