10% Down Isn’t An Option On Your Investment Property

I was working some numbers the other day on an investment property that would hold it’s own with only 5% down.  Seriously.  That includes expenses…all of them.  So I picked up the phone and asked a trusty local lender if there were any 5% down payment options for the Kansas City real estate investor. 

The answer, not surprisingly, was “no”. 

Yield to common senseMarch 2007 represents, to me, the end of non-owner occupied loans that were easy to get with terms not favorable to the lenders.  It all began to change rather quickly after that.

So as you are planning your next purchase for an investment property here in the Kansas City area you’ll need to plan on a minimum of 10% down.  Don’t forget closing costs and reserves. 

On a personal note, I’ve always thought it was better to have a minimum of 10% into your income properties, anyway.  Just seems to make sense.  If a property “breaks even” at 10% down it might even be good to go ahead and put 20% down for the extra safety/cash flow.  (That sound you just heard was Jeff’s head exploding.) 

It all depends on your risk tolerance and goals. 

For all of your questions and comments regarding Kansas City real estate investing, feel free to contact me. 

6 Comments

Filed under Personal Real Estate Opinions

6 responses to “10% Down Isn’t An Option On Your Investment Property

  1. Hey Chris — >That sound you just heard was Jeff’s head exploding.

    OR — It might have been the loss of that extra $700K-1 Million in net worth lost over the next 15-20 years by putting 20% down on a property capable of paying for itself with 10% down. A million bucks extra in net worth at only 8% yield is a retirement income of $80,000 every year LESS than the guy who put 10% down a couple decades earlier. See, he bought two for the same amount of capital invested.

    Nothing like an extra $6,500+ a month in retirement income lost to make yer head explode. 🙂

    KC real estate investors are luck to have you.

  2. I knew I’d draw you out. 😉

    And I don’t disagree. But I have lived long enough, and you as well, to know that sometimes people just want that “security” of a little cash flow. I insist on drawing out the differences for them. After that, it’s their decision.

  3. KC-

    Good stuff–and you hit it about right; the timing was April 2007, but you were darng close. I closed a loan in April ’07. Terms? 100% financing, stated in come, verified assets, No PMI, 8.1% rate, interest only 5/6 Arm….I think there might have been a half point paid.

    That was gone in may, gone to 95%.
    In june, it was full doc only @ 95%.
    In July it was full doc + 720 credit score.
    by august, 10% down was needed.

    NOW…if an investor finds an OCCUPIED BARGAIN…we can do some creative things to get them to 7-8% down. They can have their 3% Closign costs paid…+ a rent credit (of a few months if needed) + a tax proration that’s favorable. + a security deposit transfer.

    with strong ratios, and experience, the net cash to close can be 7% or less, w/10% rates, without fraud.

  4. There are still lenders offering $0 down for the right deal. For instance, when you’re able to buy at such a deep discount, the banks do not mind funding the whole deal for $0 down, even for investors. Check it out an aexample ofa deal that qualifies at http://www.jumpstartmyretirement.com

    Steve

  5. Brian

    Do y’all think it is better to pay PMI or work a 80/10/10 loan? Which is better for cashflow? Are there situations where paying PMI is preferable?

  6. Brian, (here it comes) it depends. 🙂

    What I’ve seen work the best, mathmatically speaking, is paying an upfront PMI fee at closing. Usually it’s a break even point of 18-20 months down the road. But if you are getting seller contributions, it makes it easier to stomach since you are not taking any monthly hits.

    You just need to sit down and do the math for each situation. It’s ALL deductable as an expense. So there is no difference there.

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