When investing in real estate, the goal is always to maximize returns while minimizing upfront costs. But in today’s market, with high interest rates and increasing home prices, finding a perfect deal that checks every box is nearly impossible. However, assumable mortgages provide a unique opportunity to leverage low down payments, low-interest rates, and strong long-term returns—if you know how to approach them correctly.
Let’s break down how to structure a great deal using an assumable mortgage, even if it comes with some negative cash flow in the short term.
The Three Levers of a Strong Investment
Every great real estate investment balances three key levers:
1. Purchase Price – Buying at a discount is always ideal, but when assuming a mortgage, you’re not just negotiating the price—you’re gaining access to a lower interest rate than what’s currently available. Sellers aren’t likely to take less than market value when they’re allowing you to assume their loan, but we can analyze comps to ensure you’re getting a fair deal.
2. Amount Down – The beauty of assumable loans is that you can often purchase a property with far less than the 25% down required for conventional investor loans. Instead of tying up a huge chunk of capital upfront, you can leverage a lower down payment and let your money work for you elsewhere.
3. Interest Rate – This is where assumable loans shine. With investor interest rates sitting around 7.5% today, assuming a mortgage at 2.5%–3.5% provides an unbeatable advantage. This lower rate significantly reduces your borrowing costs over the long term.
Why the “Perfect” Deal Doesn’t Exist
One of the biggest mistakes investors make is waiting for the perfect deal—a property that has a great price, low down payment, and immediate cash flow. The truth is, these deals are nearly impossible to find. If you sit on the sidelines waiting for the unicorn, you’ll miss out on multiple strong investment opportunities that provide excellent long-term returns.
Instead of chasing perfection, investors should focus on leveraging assumable loans in one of two ways.
Two Strategies for Winning with Assumable Mortgages
An assumable mortgage gives you two clear paths to success. Both approaches are far superior to the stock market or other investment alternatives.
Strategy 1: The Large Down Payment Route
If you have 20% or more to put down, you can often find properties that will cash flow from day one. These deals exist, but they require more upfront capital. For investors who prioritize immediate cash flow and have significant funds available, this is a solid strategy.
Strategy 2: The Low Down Payment Route (10% or Less)
For most investors, keeping cash available for multiple deals is preferable to putting 20% down on a single property. With an assumable loan, you can often buy with 10% (often much less) and still come out ahead in the long run, even if there is some initial negative cash flow. Here’s how:
> Think of negative cash flow as an investment. Instead of bringing a larger down payment upfront, you are slowly investing in the property over time.
> The numbers work in your favor over the long term. Here’s what happens when you invest $3,000 per year to cover negative cash flow:
1. You pay down $10,000 in loan principal each year.
2. You gain an additional $12,000–$15,000 per year in appreciation.
3. You secure valuable tax benefits that further improve your overall return.
Why This Approach Wins Over Time
With an assumable mortgage, your money is working smarter, not harder. Instead of locking up all your capital in a high down payment, you’re leveraging a low interest rate to maximize long-term returns. Even if you cover a slight negative cash flow in the early years, your investment is growing through principal paydown, appreciation, and tax advantages—far outweighing the short-term expense.
The key is to shift your mindset: negative cash flow isn’t a loss, it’s a strategic reinvestment into an asset that will build wealth exponentially over time.
