How to allocate my cash to get started

[Matthew Harding]

Hi all - looking to get started with long term rentals.  I am thinking of starting with 1 single family home. I have about $150k cash to get started.  Not sure if I should purchase a lower value home, finance a nicer home (given interest rates), or something else?   What have others in a similar situation done to get started and so you have any tips or lessons learned?  Thanks! 

[Nathan Gesner]

Quote from @Matthew Harding:

Hi all - looking to get started with long term rentals.  I am thinking of starting with 1 single family home. I have about $150k cash to get started.  Not sure if I should purchase a lower value home, finance a nicer home (given interest rates), or something else?   What have others in a similar situation done to get started and so you have any tips or lessons learned?  Thanks! 

Welcome to the BiggerPockets forums!

Read a few books on real estate investing to learn the power of leverage. I like the Unofficial Guide to Real Estate Investing. Here's a very basic explanation to get your juices flowing:

Assume a house costs $200,000 and rents for $1,500. The market appreciates 3% per year.

Pay cash for one house and rent it for $1,500. After five years you'll have earned $90,000 in rent income and gained $34,000 in appreciation.

Buy four houses with $50,000 down on each. Mortgage payment is $1,000 on each house, so you're essentially earning $500 per house or $2,000 a month. After five years you'll have earned $120,000 in rent income and gained $136,000 in appreciation. You've earned $132,000 more by splitting your money and leveraging it.