Don't Make Down-payments

Those of you who know me well know that I don’t like to bring money to closing; I’ve alluded to this fact in multiple articles here on BiggerPockets including here. Indeed, I specialize in Creative Finance and aim to achieve 100%, or as close to it as I can get on every deal that I do. There are very good reasons for this, which is the topic for today.

First, let’s establish that there are basically 3 reasons why people commonly feel that making a large down-payment is either necessary or desirable, and they are:

  1. Down-payment is required by the lending entity.
  2. Down-payment facilitates greater cash flow.
  3. Down-payment facilitates stronger equity position and safety.

Let me address all three…

1. Down-Payment is a Requirement of the Lending Institution

This is going to be quick – I don’t play by those rules. If a lender requires a stiff down-payment and there is no way to work around it using a blanket or some other type of cross-collateral then I move on – period. We live in a 14 trillion dollar economy plus, and if you can’t find some type of financing which is easier to accomplish than 25% down – open your eyes…

2. I Don’t Buy Cash Flow – I Create It

I hear this all the time – if the property doesn’t cash flow enough, just put more money down. What kind of backwards logic is that? As investors, we should never buy cash flow – we should create it!

First of all, in my book an acquisition needs to cash flow a bare bones minimum of $100/door under 100% financing to start with. But, even this should not be enough for you to pull the trigger. …read more