First property, 125k, what do I do?

Question

I'm looking to buy my first property.

Would you recommend:

A. Buy 4 properties at around 125k each?

B. Buy 2 properties at around 250k each?

C. Buy 1 property at around 500k?

Assume overall roi and cash flow for each option is roughly the same.  Thanks for your opinions!

Account Closed · Answer

The quality of the people and the neighborhood you are going to be dealing with regarding a 125k house might take a really strong stomach.

I don't know where here hell you are going to get a 125k house that isn't in a god forsaken hell hole.

The other thing to consider is, roofing, for example, is $ per square. 26 squares of roof is 26 squares of roof. You don't get a discount because you house is in a super low income area.

You want 4 roofs for the same money?

Bryce Jamison · Answer

I'm more concerned about the quality of the property and area as opposed to the price. I want A to B class properties while avoiding anything C or below.

C and below properties always cashflow better on the spreadsheet compared to B and higher, but the spreadsheet doesn't account for all the headache that will come with lower quality properties.

But to answer what I think the intent of your question is, there's pros and cons to each. Multiple properties give you diversification, but then you'll have to manage multiple properties compared to 1. You'll also hit a cap on how many mortgages you can get, so you may start 1031ing your 8-10 100K properties into higher value ones for example.

Steve K. · Answer

Buy the ugliest property in the best location you can afford. Keep enough money aside to improve the property up to the level of the surrounding properties, and some more money left over for unexpected expenses. Location, location, location!

Abbey Humphreys · Answer

@Erik Estrada put it well. For the financing side of things, B may be your best option. I also think that @Bryce Jamison has a great point about being wary as to the class of the property.

Erik Estrada · Answer

It might be tricky to finance properties at $125,000 each. Many nationwide lenders have a minimum loan amount of $100k at 80-75% LTV. This could potentially put you under that minimum loan amount if the properties do not appraise for $125k.

If you do choose to purchase 4 at $125k, you might need to qualify with a local bank. Lender fees might also be on the high side because of the smaller loan.

Option B from a lending standpoint, might open up more doors for you.

Dave Skow · Answer

@Jason R Allen- thanks ...If the  properties are OK in condition and you can  locte them - option A ....this will allow you to  diverify a a bit and  hedge  (  if one is  vacant - it  wont  be as much of a  drain ) ...get pre approved  if you need it and  havent  done it yet

V.G Jason · Answer

Pretty much this. Buy a $175k property in a $300k median above average neighborhood with growing population, favorable landlord laws. Put $50k in the property, keep $25k aside and watch it develop. Capex, tenant count is mitigated by the endless scaling.

Bob S. · Answer

A,, can't get hurt jumping out of the basement window.  I just got 7 all under 80k all in, with 1100- 1400 in rents, values about 115k- 130k,,,,,

All the best

Noah Bacon · Answer

I would take A. I'm assuming these properties are in different locations. Diversifying locations may be a safer play, but I would rather have variety to isolate any potential losses due to market conditions. If we're talking 1 property with multiple units, then that is a different approach and I would be thinking differently!

First property, 125k, what do I do?

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