No. of Recommendations: 3

We have offered on our first investment property and had the offer accepted! The property is 4 4-plexes which will be managed locally (we've already hired the mgmt co.) and will be quite positive if our projections make sense. Anyway, the numbers (per building, there are

Purchase price: $123,000

Gross Rent: $425x4 units/bldg $1700
Mgmt fee: 5% of gross + 2% (our est.)
for misc extra overhead: $119
Taxes (CA): $154
Reserves and maintenance at 10%: $170
Insurance: $80
Vacancy estimate based on previous
owner and local census data of 5%: $85
Cash flow before debt service: $1092

The units are presently all rented and based on the mgmt co and
local newspapers appear to be somewhat below market (they are 2/1's
with garages and laundry hookups, built in 1981).

Now the question: our loan broker has found us an 80% LTV at 7%
and a 90% LTV at 9.5% (with no PMI). Both fixed, and we qualify
for both. The numbers here:

Mortgage payment at 90% LTV: $931
Mortgage payment at 80% LTV: $655

Cash-flow at 90%: $161
Cash-flow at 80%: $437
Pre-tax ROI* on $12,300 at 90%: 15.7% (161x12/12300)
Pre-tax ROI* on $24,600 at 80%: 21.3% (437x12/24600)

*Yes, I am ignoring closing costs, but since they are fixed they aren't really material to the comparison. Also, I don't know quite what they are yet :)

So, the question is should we basically double our down payment to
increase our cash-flow by 271%? Friends of mine in the real-estate
biz, and the books I've read on the subject, basically seem to take
the line that you should down the minimum you can get away with and
still have true positive cash flow, so you can have cash available for future investing, since if the market is decent you'll be able to raise the rent and become more cash-flow positive over time, and can make money on other buildings. On the other hand, this is our first property, and I'd like to be "strongly" positive to start with so we aren't destroyed by our inevitable mistakes. Also, we aren't going to buy anything else for the next several months (at least), and even at 20% down, we still have decent e-funds and backup money. What do the investment pros think?

Foobarista, going where he's never gone before...

PS: I posted this to the RE investing board but got few reponses
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