A Path to choose
Hi All,
I’m new to the whole real estate game (down town Chicago). I found out that my rent was the same as a mortgage, so last year I made the switch. I purchased a fixer upper, moved in, and did the work myself. Now I rent out the second bedroom and my renter has cut all my cost by more than half. In addition the house was appraised and I discovered I made a nice chunk of change. I had a blast through the whole experience (with the exception of dealing the real estate agent, but that’s another story). The point is I’m eager and ready continue the process by adding more rentals to my portfolio.
Here’s my dilemma, I have 2 options with the $70k I have in cash.
2 bed 1 bath - Use $60k cash for a down payment and closing on a place that needs no fixing up and already has renter for the year. After all cost, I will gain a profit of $2,900 a year.
This means my mortgage +Tax +HOA is $1,500 per month
1 bed 1 bath - Use $30k cash for a down payment and closing on a place that needs $10k in fix up. ($40k total) This means, I will be out of pocket for 3 months fixing it up and finding a renter (-$6k). When it’s done, after expense I will be making $3,000 per year. In addition, in a 4-6 month period I could save up another $10k and buy another place doing the same thing.
This mean my mortgage +Tax +HOA is $1,000 per month for one place.
The question is:
Do I buy the 2 bed 1 bath already rented, then in 6 months refinance, take out 30K and then buy another place. Now have $50k cash
Or
Do I buy the 1 bed 1 bath that needs work and will cost me 3 months to fix and rent while paying a mortgage at losing rent. But I’ll have enough money to do it again in a 6 month time frame or refinance and do it sooner.
Now that I write this out, although the Mortgage is higher in the 2 bed 1 bath. I’ll have enough cash to get a second place in 6 months. Whereas if I buy the fixer-up and do it again regardless of a refinance, I loses $12,000 in mortgage payment + not getting rent. (6 months of fixing and loss of rent)
Nonetheless, your thoughts would be greatly appreciated!