How come people don't pay 100% down on "investment homes" ?

thunderchunk69

thunderchunk69

24,030
1,926
Joined
May 18, 2005
Everytime I hear about someone buying "investment homes" they never pay 100% down, and it seems to be the general consensus that that is the"smart" thing to do?

They always can afford to put down 100% without putting a dent in their pocket.
wouldn't it be better to pay 0% financing? am I missing something here?
 
Originally Posted by ThunderChunk69

Everytime I hear about someone buying "investment homes" they never pay 100% down, and it seems to be the general consensus that that is the "smart" thing to do?

They always can afford to put down 100% without putting a dent in their pocket.
wouldn't it be better to pay 0% financing? am I missing something here?
Click to expand...
if the house depreciate they can give the house back also known as forclosure
 
Originally Posted by poblack

2 words... Cash Flow
Click to expand...
This is what I keep hearing, but I don't get this concept, and they don't seem to be able to explain it, they just seem to repeat it likeparakeets
ohwell.gif

wouldn't it just be better to be in the green quicker?
 
I'll try to help (though I don't know too much about real estate investments).

Try to picture this (extreme) situation.

You have $100,000 - that's it. You want to buy a house as an investment. The house costs $100,000.

If you bought the house, how would you pay for food, bills, etc.?

Basically, they usually won't have enough money to both pay for the house and continue their current day-to-day activities/operations.

People/investors like liquidity.

Hope this helps.

I could be totally off-topic though.
 
Actually if you are paying a mortgage you get tax breaks so it rarely makes sense to pay it fully off, atleast right away. Especially if you can afford to.
 
Think about it Bro if you buy a house worth say 150K 1. you have 150K in stocks or some other form of investment vehicle its going to cost you some $$ in taxesto convert that into cash. 2. Any decent investment is going to pay you a better return than the interest that you are going to pay for the mortgage over a 15or 30 year period. 3. The interest that you pay on the mortgage is tax deductible which your gonna need if your making some $$$.
 
they use the money from the rent to pay off the mortgage and you're expecting to make money from the sale of the property in the future. also, thatproperty can be used as a tax shelter...

here's a link to an excel spreadsheet for one of my friends 4plex investment property that you can check out...

http://www.sendspace.com/file/gbw4nf
 
Originally Posted by ThunderChunk69

^but

I know someone with 400k
putting 75k down on a 150k house... and he has a great job.

?
Click to expand...
True. My ex was a little unrealistic.

edit: i give up. This example doesn't make sense either. I'll take the L and call it a night. Peace!
 
rat pack, I get you, but if you pay 100%, wouldn't you be just be further into profit?

and rulo823

I guess the "tax deductions" from the mortgage is why people do it?

edit: thanks for the .xls ratpack
and POETICJAYS, he has enough $ to buy 2 houses and still be comfortable...
 
Originally Posted by ThunderChunk69

rat pack, I get you, but if you pay 100%, wouldn't you be just be further into profit?

and rulo823

I guess the "tax deductions" from the mortgage is why people do it?
Click to expand...


yeah chuck that is the ONLY reason, I am in a similar situation.
 
They probably don't want to tie all their money in one investment. Think about it:

If i have 500k, do I want to use all 500k to buy one 500k property?

Or put 20% down, and purchase 5 investment properties? (100k for each property), and thus get 5x the cash flow?

Its called leverage.

Plus, basic time value of money. You pay what..5-6-7% on your mortgage? If you think you can get a higher return than that, i.e. the stock market has averagedabout 10-11% annually, then a smart investor would gladly pay the 5-7% on the mortgage, use the leftover money in other investments (say the 11% from the stockmarket) and he comes out 5% ahead.
 
well since I already have you dudes here.
anyone own a home with section 8 (gov't assisted) tenants?

I was thinking of getting a home and renting it to some off the books section 8 people I know
 
Originally Posted by ThunderChunk69

well since I already have you dudes here.


anyone own a home with section 8 (gov't assisted) tenants?




I was thinking of getting a home and renting it to some off the books section 8 people I know
Click to expand...




make sure you have a GREAT property manager
 
you don't ever want to use your own money to pay off the mortgage. if the rent does not cover the mortgage, insurance, maintenance, vacancy factor,redo's.. etc, DON'T DO IT!
 
Originally Posted by The Rat Pack Is Back

you don't ever want to use your own money to pay off the mortgage. if the rent does not cover the mortgage, insurance, maintenance, vacancy factor, redo's.. etc, DON'T DO IT!
Click to expand...
I get you, but if you pay it off 100%, you don't have a mortgage.
so why don't more people do this?
laugh.gif

this is what I'm getting at.
but I guess they'd rather just make minimal profit in several locations? hoping to also make way more in the possibility that they sell the real estatecompletely?
 
It was best explained above by "leverage". Leverage (a loan) in its simplest form is a tool that allows you to take on more than you could afford byyourself.


Think about this simple example. You're buying a $100,000 property. You can (A) buy the property outright for $100,000 or (B) put down $20,000 and financethe rest at 5.5%. Say you sell the property for $110,000 a year later. In situation (A), you've made 10% or $10,000. In situation (B), you've made 28%or $5,600. (110,000 - 80,000 down payment - $20,000 initial investment - $4,400 interest).

Now, Situation A seems to be better (10,000>5600) until you realize that you've only invested 1/5th of the amount in Situation B. Thus, if you were toinvest equal amounts in both, you would still make your $10,000 in Investment A, compared to a return of $28,000 in Investment B. Investment B is obviouslysuperior to Investment A, all things equal.


As a result, you should now be able to see why it is smarter to finance investment properties, even when one has enough capital to outright purchase it. Notonly does financing provide superior returns, but it give's an individual more leeway as to how they invest their money. They do not have to buy 5properties. For instance, they could buy 2 at $20,000 and invest the remaining $60,000 in stocks & bonds. Thus, they would also add diversification totheir portfolio, should the unthinkable happen and inflated home prices fall (I know ... impossible!!)
 
Also if you pay for a house, car, anything like that in full it doesnt report to your credit history
 
You must log in or register to reply here.

The ultimate sneaker enthusiast community.

NikeTalk was created as a way of giving back to both the sneaker enthusiast community and to the greater global community of which we are all a part.

NikeTalk is NOT affiliated with Nike Inc. in any way, shape, or form. All opinions expressed herein do not necessarily reflect those of Nike, Inc.

© 1999-2024 NikeTalk.com

Share this page

Back
Top Bottom