Hi im new to the real estate market and will be purchasing my first income property. My question is, is it better to put zero down and save the my down payment or put as big of a down payment as I can? I was also wondering about the amortization period is it better to stretch it out to make my monthly payment lower or try to pay off the property as quick as I can? I will also be living in this first property while I look to purchase another. Thanks
Down Payment
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QUOTE (Dia @ Oct 8 2007, 11:11 AM) Hi im new to the real estate market and will be purchasing my first income property. My question is, is it better to put zero down and save the my down payment or put as big of a down payment as I can? I was also wondering about the amortization period is it better to stretch it out to make my monthly payment lower or try to pay off the property as quick as I can? I will also be living in this first property while I look to purchase another. Thanks
Hi Dia,
The general response you`re likely to get here is that your return will be higher if you put less down, but the true answer depends on what your goals are for the investment.
For example, if you spend $1.00 and make a $1.00 profit, you have a 100% return on your investment. But, if you spend only $0.25 to make a $1.00 profit, you now have a 400% return on your investment.
So, if you want to get the highest return on your investment, you are better to put very little down on the property.
But (there`s always a `but`...), if your intention is to have a property that generates a positive cash-flow each month, you may need to put more money down. If the property is 100% financed, it may be impossible to generate enough rental income to pay the mortgage. Your return on investment would be huge when you sold the property, but you would slowly go broke until you sold it.
And after putting all that info aside, there`s a few other things to consider; First, if you keep buying properties, chances are that you`ll run out of money eventually. If you have no more cash to buy property #3, you may kick yourself for putting 80% down on property #1.
So, the question then becomes; What are your intentions for the property, and what are your long-term goals?
I hope that helps a bit,
David.
Hi Dia,
The general response you`re likely to get here is that your return will be higher if you put less down, but the true answer depends on what your goals are for the investment.
For example, if you spend $1.00 and make a $1.00 profit, you have a 100% return on your investment. But, if you spend only $0.25 to make a $1.00 profit, you now have a 400% return on your investment.
So, if you want to get the highest return on your investment, you are better to put very little down on the property.
But (there`s always a `but`...), if your intention is to have a property that generates a positive cash-flow each month, you may need to put more money down. If the property is 100% financed, it may be impossible to generate enough rental income to pay the mortgage. Your return on investment would be huge when you sold the property, but you would slowly go broke until you sold it.
And after putting all that info aside, there`s a few other things to consider; First, if you keep buying properties, chances are that you`ll run out of money eventually. If you have no more cash to buy property #3, you may kick yourself for putting 80% down on property #1.
So, the question then becomes; What are your intentions for the property, and what are your long-term goals?
I hope that helps a bit,
David.
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QUOTE (Dia @ Oct 8 2007, 11:11 AM) Hi im new to the real estate market and will be purchasing my first income property. My question is, is it better to put zero down and save the my down payment or put as big of a down payment as I can? I was also wondering about the amortization period is it better to stretch it out to make my monthly payment lower or try to pay off the property as quick as I can? I will also be living in this first property while I look to purchase another. Thanks
One of the greatest hinderences to real estate investing can be cash flow, thus using the maximum amount of financing can be a great advantage. This is one of the reasons that RE can be a better investment than paper assets, it is all about leverage. You may suffer from a negative cashflow on your property but your greatest money-maker will be your growth in equity through value increase. You will then have the ability to to get a equity line of credit or loan to purchase additional properties.
If you are renting out you property, you must also consider the fact that you must put a min. 20% down to have a legal rental (in my experience).
One of the greatest hinderences to real estate investing can be cash flow, thus using the maximum amount of financing can be a great advantage. This is one of the reasons that RE can be a better investment than paper assets, it is all about leverage. You may suffer from a negative cashflow on your property but your greatest money-maker will be your growth in equity through value increase. You will then have the ability to to get a equity line of credit or loan to purchase additional properties.
If you are renting out you property, you must also consider the fact that you must put a min. 20% down to have a legal rental (in my experience).