Money down vs 100% financing.

How do you veteran investors structure a buy? Is it better to go with100% financing and use OPM or put down 5, 10 or 20% to lower payments and increase cash flow. Appreciation rates are about 2-3% and the home prices we are looking at are 85,000 max. Rent rates are upwards of 850/month.


For buy and hold it’s really a function of the ‘equity’ you have in the property when you purchase it. If you’re buying homes at retail (i.e. close to their ARV / FMV) and the expected appreciation (be careful how much you ‘expect’) is low then financially it makes more sense to put more money down because the value in that asset is the cash flow.

If you are purchasing at a substantial discount from the ARV / FMV and/or the expected appreciation is high then it makes more sense to leverage yourself to a higher extent because the real value in that asset is the ‘equity’ more than the cash flow. In assets of this nature the risk of the leverage is mittigated by the appreciation of the property.

Neither is an absolute and both have risks involved, but from a numbers standpoint, that’s when the scenarios make sense.

A third option is to pay cash for a substantially discounted home, fix it up then cashout refi (at 80 or 90% depending on the above factors) to return your investment and cash flow.

The terms also make a difference. If you can take over someones house with little or no money and still cash flow then you might have a good deal.

It’s a general rule that refinance-money is cheaper than purchase-money. Depending on what you are considering, that’s probably a good determinant of whether to use 100% financing.

No, refinance money is not cheaper than purchase money. Cashout Refinances are hit with YSP hits of typically 25 basis points where as rate term / purchases are not. Also, purchases are often given a YSP adjustment of 12.5 basis points or upwards based on the service premium given to them so in all fairness, purchases are the least expensive from the loan side.