Financing Options

[Matthew Brill]

I am looking at purchasing my first buy and hold rental property in Oklahoma City. I have talked to a couple of mortgage specialists in attempt to determine potential closing costs to backtrack into the purchase price range to find my deal. I won't be living in the property so I'm looking at least at 15% down. I know there are various factors at play including PMI, purchasing points, lender, and fixed vs ARM that make for seemingly infinite iterations. I chose to use $100k duplex as my purchase point, estimated $1500 monthly rent, $650 monthly expenses and looked at options of 15% (requires PMI), 20% (no PMI), and 25% down. I ran some numbers and came up with the following:

15% down: $20.7K at closing, Cash flow $354 per month, cash on cash ROI 20%

20% down: $25.4K at closing, cash flow $426 per month, cash on cash ROI 20%

25% down: $30.5K at closing, cash flow $470 per month, cash on cash ROI 18.5%

Just looking at the numbers (My expense estimate and rental estimate are likely off but would still remain common variables between options), am I better off leveraging more despite less cash flow or leveraging less but getting more cash flow and possibly a lower ROI? Is there something else I should be factoring into my decision?