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Author: ems79 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 126963  
Subject: Re: question: down payment on my first home Date: 5/14/2013 1:13 PM
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Would you recommend 10% down and break even every month, or 20% down and have a positive cash flow of about $300 a month?

I think a reasonable rule of thumb is to assume that you will require 1 month's worth of gross rent each year to cover vacancies and minor repairs between/during tenants. On top of this you may have longer term expenses like HVAC repairs, roof, siding, etc... I mention this because it sounds like you may break even on gross rent vs. mortgage, but not necessarily vs. your monthly costs... are you, as a LL, responsible for water? sewer? trash pickup? yard maintenance? any HOA dues/requirements? What is the general condition of the house and systems? Have you considered your insurance costs--since being a LL will increase the property insurance and you should also plan on having an umbrella policy of sorts to cover yourself and other personal assets from litigation connected to the rental.

On the other hand, if any expensive costs/repairs come due within a year or two the fact that you may be ahead $300 most months could easily be insufficient to handle it, so in that case unless you have other savings available, having that $24,000 chunk of cash on hand could float you though a major repair, or extended vacancy.

Will putting 15% down reduce your PMI at all, maybe you can split some of the difference?
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