How Much Should You Put Down on a Rental Property?

Money Guy Show

Brian Preston, CPA, CFP®, PFS and Bo Hanson, CFA, CFP® | Fee-Only Fiduciary Advisors

Education, Investing, Business

4.7 • 3.1K Ratings

🗓️ 18 September 2023

⏱️ 22 minutes

🔗️ Recording | iTunes | RSS

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Summary

How much should you put as a down payment on a rental property, and why? We'll walk you through that question and more in today's Q&A episode! Jump start your journey with our FREE financial resources Reach your goals faster with our products Take the relationship to the next level: become a client Subscribe on YouTube for early access and go beyond the podcast Connect with us on social media for more content Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life. Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	All right, next up we've got a question from William.
0:10.1	He says, do you guys still find it compulsory to put 20% down on the new home if we plan
0:16.6	to rent out the condo that we live in now, that was our first home?
0:22.3	He says that they're both 40 and 37.
0:24.4	He and his wife and they live in San Diego, California for some context.
0:28.3	Well, you know, here's my thought, why do we say put down 20% on your next home?
0:36.2	It's really more of a risk mitigation thing, right?
0:38.8	We want to make sure that when you are approaching your financial situation, you're not taking
0:43.6	on more risk than should be taken on.
0:46.3	Well, having 20% down on that second home is a really good way to protect the equity
0:50.3	of the value of your house and to make sure you're making an affordability decision.
0:54.4	William, you may say, all right, I got this condo, but what I'm going to do is I'm going to
0:58.9	rent it and it's going to be great.
1:00.3	I'm going to have a tenant and they're going to cover the note and I might have some free cash flow.
1:03.2	And so because of that, I only need to put 5% down on this second house and then with a cash flow
1:08.4	I have coming from the rental, I'll be able to use that and pay for the second house.
1:11.7	And that all sounds great on paper, but a lot of times it doesn't necessarily work out
1:18.7	exactly the way that you have planted out.
1:21.2	So my opinion is that even if you're going to buy the second home and you're going to keep
1:25.0	the first, you're going to make it a rental, I still stand by.
1:28.0	I think you need to do 20% down for the second home or you are not in a position in your financial
1:34.2	circumstance that it's time for you to start owning rental properties.
	...

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