Peter Considers 25% Down Payments Instead of 20% Down Payments

Previously, in our series of Real Estate Investor Stories, we met Peter from Denver, Colorado. Previously, we has focused on buying ten 20% down payment rentals to achieve financial independence.

Today, Peter is going to go consider saving up 25% instead of 20%.

Why? Because the interest rate for 20% down payment loans is about 3.625% right (as I write this) and 25% down payments are 3.25%.

Peter is wondering:

Will waiting a little longer to save up for my down payment but getting a lower interest rate and borrowing less improve my cash flow and allow me to achieve financial independence faster?

Just a gentle reminder about Peter and some of our assumptions for this  Scenario:

  • Peter is starting with $25,000 in savings
  • He has a good job making about $72,000 per year
  • Lives in Denver, CO but would consider living in or around the Denver area
  • Currently rents a property for $2,200 per month and is not house hacking
  • He is saving about $1,000 per month with the intention of buying rental properties (like the property he is currently renting)
  • And, unlike the previous  Scenario, he plans to put 25% down when he buys his rental properties as soon as he's saved up enough for a down payment and at least $5,000 in reserves (adjusted for inflation). This means he's both borrowing less and at a better interest rate, but it likely means he's buying properties at a slower pace (later in time).

What will happen to Peter?

  • How long does it take him to buy his first 25% down payment rental? How much long than buying a 20% down payment rental?
  • When does he get to 10 rentals? How much slower is this than buying 20% down payment rentals? Does the extra cash flow from putting 25% down (borrowing less and better interest rates) help him save for down payments faster for the later purchases?
  • How much better does the 25% down payment properties cash flow get?
  • How long does it take him to be able to replace the $5,000 per month he is living on (he is earning $6,000 but saving $1,000 per month)? In other words, how long does it take him to achieve financial independence?
  • What does his rental property income (lifestyle) look like in retirement? Is this better than putting 20% down payment down?

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Peter Buys 10 25% Down Payment Rentals with 2  Accounts, 1 Property, 3 Rules, 1 Goal

Or, read a computer-generated narrated version of Peter's  Scenario saving to buying ten 20% down payment rentals to achieve financial independence in Denver by reading the  Blueprint .

Future Episodes With Peter

In future  Scenarios we will consider a myriad of “What Happens If…” with Peter's situation. Including, what happens if:

  • What happens if interest rates go up while he's acquiring properties?
  • What happens if he opts to buy a 5% down payment property to live in?
  • What happens if he house hacks?
  • What happens if he buys 5% down payment properties and Nomads™ for all 10 properties?
  • What happens if he buys 5% down payment properties and Nomads™ for 1 property? For 2 properties? 3?
  • What happens if rents don't always go up 2% per year?
  • What happens if property values don't always go up 2% per year?
  • What happens if the money he is investing in the stock market doesn't always go up 8% per year?
  • What happens if we see rents go up, then down, then up, then down (form an “M” shape)?
  • What happens if we see rents go down, go up, then down, then up, (form a “W” shape)?
  • What happens if we see property values go up, then down, then up, then down (form an “M” shape)?
  • What happens if we see property values go down, go up, then down, then up, (form a “W” shape)?
  • What happens if we see a significant market correction?
  • What happens if tries to buy more properties to sell off some to pay off the remaining properties?
  • What happens if tries to pay off the lowest mortgage balance with cash flow each month?
  • What happens if tries to pay off the lowest mortgage balance, but only after he has enough to pay the entire balance in full?
  • What happens if rents are 10% higher at the start? 10% less at the start?
  • What happens if property values are 10% higher? 10 less at the start?
  • What happens if he stops working after 5, 10, 15, 20, 25 years regardless of whether he's achieved financial independence or not?
  • What happens if he sees a random, significant market correction in stocks? In real estate? In both stocks and real estate, but independently? Both at the same time?
  • What happens if he gets married, has more income but also more more expenses?
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