How's The MarketInterested in buying a rental property?  Perhaps you were thinking that a 20% rental property down payment would do the trick to get you started as a real estate investor?  That may work in some places. In most of the U.S., though, you’ll need 30% down to be “cash flow neutral”, meaning that you aren’t losing money each month.  In pricey Silicon Valley, though, often it takes more than a 40% down payment on an investment property just to break even.

Today a friend and past client asked me exactly this question.  The investment property in mind, a townhouse,  would pull in a monthly rent of about $2600 to $2800 when occupied. (Remember, you have to also factor in at least some vacancy rate.)  The list price for this townhouse is about $650,000. (Side note:  with a condo or townhouse,  insurance coverage is probably going to be a lot less costly than with a single family home.  The estimates below are for a townhome.)

Where do you think the cash flow neutral or break even point would be in terms of the down payment?    That question is today’s case study.  Have a look at the various scenarios of  20% down, 30% down,40% down and 50% down:

Investment property down payment needed to be cash flow neutral

If my calculations are correct, you really need to put about 50% down to buy this particular Santa Clara County townhome and have it support itself.

Is that a good deal?  Not really. At least not if your main focus is cash flow.

There are other places in the country where you can put a lot less down and break even or have a positive cash flow.

Of course, cash flow is one motivator.  Another, though, is appreciation.  Depending on your own goals, you may be far more interested in appreciation than cash flow.  If that’s the case,  Silicon Valley may be exactly what  you’re looking for as an investment buyer.  Those places where the down payment can be smaller may not have the same upside potential with appreciation as we have here in the San Jose area, or the San Francisco Bay Area as a whole.

Interested in becoming a real estate investor? Have a good down payment saved?  Please call or email me and we can chat.  If Silicon Valley isn’t the right place for you to make your real estate investment, I can introduce you to wonderful Realtors in other areas where the numbers may be more favorable.

 

See also: Buy a Los Gatos home or real estate investment property

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Mary Pope-Handy
Realtor
ABR, CIPS, CRS, SRES
Sereno Group Real Estate
214 Los Gatos-Saratoga Rd
Los Gatos, CA 95030
408 204-7673
Mary (at) PopeHandy.com
License# 01153805


Selling homes in
Silicon Valley:
Santa Clara County,
San Mateo County, and
Santa Cruz County.
:
Special focus on:
San Jose, Los Gatos,
Saratoga, Campbell,
Almaden Valley,
Cambrian Park.
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Valley Of Hearts Delight
Santa Clara County Real Estate,
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Top 25 real estate blogs 2016
2016: Personal Income's list of top 25 real estate blogs.


Best Realtor blog award
2016: Coastal Group OC's list of best Realtor blogs


The 2009 Sellsius list of top 12 women real estate bloggers
2009: Sellsius list of top
12 women real estate bloggers


Mary Pope-Handy's Live in Los Gatos blog won the 2007 Project Blogger contest, sponsored by Inman News and Active Rain

2007: Mary Pope-Handy and Frances Flynn Thorsen win the Project Blogger Contest for Mary's Live in Los Gatos blog. The contest was sponsored by
Active Rain and Inman News.


Non blog award


Best real estate agent in Silicon Valley from the San Jose Mercury News poll of readers in 2011
"Best real estate agent
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2011 readers' poll,
San Jose Mercury News

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