Many real estate investors and house flippers use the zero percent down strategy when purchasing property to minimize the use of personal funds or when finances are limited. This strategy can be used by renters who lease first with an option to buy and homeowners who leverage their home’s equity to buy property with zero down. Yet with high interest rates and the rising costs of financing, is the zero percent down strategy wise?
Debt isn’t always a bad thing. Borrowing to invest is considered a good debt because of the potential returns and because the investment provides diversification to a portfolio. When an investor purchases a property using a down payment, they may get more favorable terms and rates while reducing their current debt and increasing future cash flow. Not to mention, when a large debt is assumed and the wrong property was purchased, the cost of repairs and maintenance becomes too much, or a market downturn occurs, they could end up being upside-down on the loan. The larger the down payment, the less impact of unexpected events.
To be successful in any form of investing you need to have a plan, do your research, and understand what level of risk you’re willing to take. For investment advice or help building your investment portfolio, contact Alloy Investment Management at 800-689-3935.