All ModelsIs it better to put 20% down or 25% down when buying rentals?

Is it better to put 20% down or 25% down when buying rentals?

First, we buy an owner-occupant property with 5% down then we start buying rental properties. Should we put 20% down for buying the rentals or 25% down. See how putting 20% down or 25% down does as we model it across the US in over 300 cities.

Video

NOTE: The information in the video may differ from the numbers shown below because we may have changed our assumptions (like the mortgage interest rate, property prices and rents) between when the video was made and current assumptions.

Comparison Summary

Metric 20% Down 25% Down Difference % Better/Worse
Net Worth at 40 Years $11,194,957 $11,049,759 $145,198 1.3%
Short $ -$13,502 -$13,502 $0 0%
# Properties 9.9 9.9 -0 -0.5%
MTMIR Achieved 506.2 497.5 8.7 1.7%
Risks
Ave Total Rent Resiliency % 32.45% 34.77% -2.32% -7.2%
Ave Total Price Resiliency % 66.54% 67.14% -0.6% -0.9%
Ave Debt-To-Income 22.31% 19.6% 2.71% 12.1%
Ave Debt-To-Net-Worth 46.76% 44.1% 2.66% 5.7%
Ave Debt-To-Account-Balance 163.53% 159.23% 4.3% 2.6%
Ave Months Of Reserves 808.1 795.5 12.7 1.6%
Metric 20% Down 25% Down Difference % Better/Worse
Net Worth at 40 Years $8,719,877 $8,687,153 $32,724 0.4%
Short $ $0 $0 $0
# Properties 10 10 0
MTMIR Achieved 467 447 20 4.3%
Risks
Ave Total Rent Resiliency % 33% 35% -2% -6.1%
Ave Total Price Resiliency % 69% 70% -1% -1.5%
Ave Debt-To-Income 21% 18% 3% 14.3%
Ave Debt-To-Net-Worth 47% 45% 2% 4.3%
Ave Debt-To-Account-Balance 212% 218% -6% -2.8%
Ave Months Of Reserves 316 319 -3 -1.0%

For Risks, we are measuring the average of that risk for the entire Scenario for that city. The Average or Median option at the top of the table is whether we take the average of all the averages for all cities or the median of all averages for the cities. Average tends to skew values (high or low). Median tells us the middle most.

Achieving Financial Independence

Between 20% Down Payment Non-Owner-Occupant (20% Down in the chart below) and 25% Down Payment Non-Owner-Occupant (25% Down), which one gets you to financial independence faster?

Let's look at Financial Independence first, then we'll move on to Net Worth.

  • In 20% Down, 9 never achieved financial independence.
  • In 25% Down, 9 never achieved financial independence.
  • There were 9 where BOTH never achieved financial independence regardless no matter which scenario.

Financial Independence

The following did not achieve financial independence and are therefore not shown in the chart above:

  • For 20% Down 9 cities never achieved financial independence.
  • For 25% Down 9 cities never achieved financial independence.

How Much Faster to Financial Independence vs Property Value

Is the difference in how long it takes to be financially independent (Lean FIRE), really about how expensive the properties are in that market?

  • Is it generally faster to be financially independent in less expensive real estate markets with these two strategies?
  • Is it faster in more expensive markets?
  • Does it not really matter if the market has expensive or less expensive properties?

Mouse over each data point to see the city and state being plotted.

Net Worth

Now that we've covered and compared financial independence, let's next look at how they compare for net worth.

  • For 20% Down:
    • Average Net Worth at 40 Years: $11,194,957
    • Median Net Worth at 40 Years: $8,719,877
  • For 25% Down:
    • Average Net Worth at 40 Years: $11,049,759
    • Median Net Worth at 40 Years: $8,687,153
  • 20% Down has a $145,198 better Net Worth at year 40 on average. That's 1.3% better.
  • 20% Down has a $32,724 better median Net Worth at year 40. That's 0.38% better.

IMPORTANT NOTE: The net worth numbers above are 40 years in the future, so they're in inflated, future dollars. If you assume a 3% inflation rate, they'd be about 1/3 of the values shown if we adjust back to today's, uninflated dollars.

How Much More Net Worth vs Property Value

Is the difference in how much more you have in net worth really about how expensive the properties are in that market?

  • Do you have higher net worth in less expensive real estate markets with these two strategies?
  • Or, is it higher in more expensive markets?
  • Does it not really matter in terms of net worth if the market has expensive or less expensive properties?

Mouse over each data point to see the city and state being plotted.

Negative Account Balance

In some cities, it is possible that by purchasing properties with negative cash flow, they run out of money (have a negative account balance). I might refer to this as being short on money to utilize that strategy.

  • For 20% Down:
    • Average Negative Balance: -$13,502.36
    • Median Negative Balance: $0
  • For 25% Down:
    • Average Negative Balance: -$13,502.36
    • Median Negative Balance: $0
  • Same average negative balance.
  • Same median negative balance for both variations.

What's Better?

The following are special reports answering a specific comparison question of exactly TWO different  Models.

These special reports answer questions about what's better like: is Nomad™ better than putting 20% down? Or, how big of a difference does getting slightly better rent make?

Check out these what's better reports:

Single Strategy Special Reports

The following are special reports that show how a single specific  Model (Nomad™, buying 20% down rentals, buying properties as a real estate agent, etc) performed across all the different cities we modeled.

These special reports answer how does this strategy do questions like: does Nomad™ work only in certain markets? Which ones?

Check out these how does this strategy do reports:

  • 5% Lower Rents While Nomading™ - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except you are only able to get 5% lower rents.
  • 5% Higher Rents While Nomading™ - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except you are able to get 5% higher rents.
  • 10% Property Price Premium While Nomading™ - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except forced to buy properties at a 10% premium.
  • .5 Worse Interest Rate While Nomading™ - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except able to buy properties with a .5 worse/higher mortgage interest rate.
  • Nomad to Short-Term Rentals with 75% Higher Rents - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except you utilize a short-term rental strategy after moving out and are able to get 75% higher rents but with doubled maintenance expenses as well.
  • Nomad to Short-Term Rentals with 50% Higher Rents - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except you utilize a short-term rental strategy after moving out and are able to get 50% higher rents but with doubled maintenance expenses as well.
  • 10% Property Price Discount While Nomading™ - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except able to buy properties at a 10% discount.
  • 5% Property Price Premium While Nomading™ - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except forced to buy properties at a 5% premium.
  • 10% Less Job Income While Nomading™ - Buy up to 10 owner-occupant properties using the Nomad™ real estate investing strategy but model it with the investor earning 10% less income than in the Baseline Nomad™ Scenario.
  • 10% Higher Rents While Nomading™ - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except you are able to get 10% higher rents.
  • 10% More Job Income While Nomading™ - Buy up to 10 owner-occupant properties using the Nomad™ real estate investing strategy but model it with the investor earning 10% more income than in the Baseline Nomad™ Scenario.
  • .25 Better Interest Rate While Nomading™ - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except able to buy properties with a .25 better/lower mortgage interest rate.
  • 25% Down Payment Non-Owner-Occupant - Buy 1 owner-occupant property with 5% down then up to 9 non-owner-occupant properties with 25% down payments.
  • Nomad™ and Sell ALL Rentals if SWR Achieves FI - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except sell all the rental properties if by doing so you can invest the proceeds and achieve financial independence utilizing a Safe Withdrawal Rate of the money you have invested.
  • Nomad to Short-Term Rentals with 25% Higher Rents - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except you utilize a short-term rental strategy after moving out and are able to get 25% higher rents but with doubled maintenance expenses as well.
  • Baseline Nomad™ Scenario - Buy up to 10 owner-occupant properties using the Nomad™ real estate investing strategy.
  • Nomad™ Start with $0 - Do the traditional Nomad™ strategy except you start with $0 saved up.
  • 10% Property Manager While Nomading™ - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except hire a professional property manager costing 10% of gross rents.
  • 3% Property Price Discount While Nomading™ as Real Estate Agent - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except as a real estate agent you take your 3% commission as a discount off the purchase price.
  • Buy Non-Owner-Occupant All Cash As Renter - Save up and buy up to 10 non-owner-occupant properties all cash (without any mortgage) while you remain a renter the entire time.
  • Buy Non-Owner-Occupant All Cash - Buy 1 owner-occupant property with 5% down then save up and buy up to 9 non-owner-occupant properties all cash (without any mortgage).
  • Nomad™ and Payoff OO if Achieves FI - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except payoff your owner-occupant property if by doing so that means you achieve financial independence.
  • .5 Better Interest Rate While Nomading™ - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except able to buy properties with a .5 better/lower mortgage interest rate.
  • Nomad™ and Sell SOME Rentals to Payoff Others if FI - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except sell some rental properties if by doing so you can payoff the others and achieve financial independence primarily from free and clear cash flow.
  • 3% Commission While Nomading™ as Real Estate Agent - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except as a real estate agent you earn a 3% commission with each property you purchase.
  • 5% Property Price Discount While Nomading™ - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except able to buy properties at a 5% discount.
  • .25 Worse Interest Rate While Nomading™ - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except able to buy properties with a .25 worse/higher mortgage interest rate.
  • 20% Down Payment Non-Owner-Occupant - Buy 1 owner-occupant property with 5% down then up to 9 non-owner-occupant properties with 20% down payments.
  • 10% Lower Rents While Nomading™ - Buy up to 10 owner-occupant properties utilizing the Nomad™ real estate investing strategy like the Baseline Nomad™ Scenario except you are only able to get 10% lower rents.
  • No Real Estate, Invest in Stocks - Save up and invest in stocks while you remain a renter the entire time. Do not buy any real estate... owner-occupant or investment.
  • Pay off mortgages early when Nomading™ with any excess cash. - Do the traditional Nomad™ strategy except you pay off the lowest balance mortgage early with any excess cash.
  • Pay off mortgages in full early when Nomading™. - Do the traditional Nomad™ strategy except you pay off the lowest balance mortgage early but only when you can pay off the entire balance in full.
  • 25% Down Payment Non-Owner-Occupant as Renter - Buy up to 10 non-owner-occupant properties with 25% down payments, but never buy an owner-occupant property. Remain a renter instead.
  • 20% Down Payment Non-Owner-Occupant as Renter - Buy up to 10 non-owner-occupant properties with 20% down payments, but never buy an owner-occupant property. Remain a renter instead.