One Expensive House or Multiple Cheap Houses?

11 Replies

I'm struggling to determine what to do with the cash I have. I have $30k cash saved up to use for REI, and access to a loan which qualifies me for 10% down on MFH and 3% down on SFHs at a low interest rate.

I think it would be smarter to break this cash up and use it to buy 2 or 3 properties, rather than blowing the whole $30k on one down payment. This would likely be a better use of leverage, as long as all of the properties I'm looking at are appreciating similarly, right? What is the conventional wisdom here? I don't want to lose momentum after buying my first house and having to wait a year to save up for another down payment... 

@Gabriel Tursi Well a 3% down payment is likely going to be an owner occupied loan and not an investor loan.  I am very unfamiliar with the MFH market...but Ive got to wonder about the appreciation levels of MFH.  I think $30k could make a very nice 20-25% down payment on a cash flowing property and leave you with some cash for the inevitable emergency repair. Unlike @Brandon Turner who is an expert at getting into properties with low or no money down, I typically am more conservative in my investing and put a tradition 20-25% down payment on a property.

You could either buy property in neighborhoods you might not want to live at yourself or pay 3% and live in each property for about a year and then move to the next one in order to not pay as much money down.  You will want to make sure the mortgage payment is much less than what you would get for rent by a factor of about 2 and also try and pick properties that have some instant equity.

@Russell Brazil Thanks for the response! I am 24 and my risk tolerance is 10/10 (keeping in mind intelligent investing and never speculating) so 3% down payments aren't an issue to me as long as they are cash flowing.

And believe it or not, this loan doesn't require owner occupation. It is from a nationwide reputable bank and I don't think I'm being punked (although these terms are incredible).

Which bank? Usually banks will require 20-25% for investment properties.

@Russell Brazil

Thanks for the response! I am 24 and my risk tolerance is 10/10 (keeping in mind intelligent investing and never speculating) so 3% down payments aren't an issue to me as long as they are cash flowing.

And believe it or not, this loan doesn't require owner occupation. It is from a nationwide reputable bank and I don't think I'm being punked (although these terms are incredible).

Gabriel,

Don't forget to keep some of that cash in near liquid reserves for all the expenses that tend to come up, at least $5K, maybe $10K.

I would probably look for one multi and go that route. The advantage of multiple doors is that it is spreading the risk of turnover, some money is coming in unless they all bail at the same time. The advantage of one property over several SFR is that the loan fees, insurance, taxes, water, etc should be cheaper pooled.

@Michele Fischer Thats a great point, one good MFH could save on expenses and headaches as opposed to several okay SFHs. I worry about momentum though, if I spend all my available cash on one property, it may be a year or longer before I can buy my second. I intend to expand as quickly and intelligently as I can. 

Try to look at your expansion as increase in net worth rather than property count.  Number of properties owned may feel good, but number of doors/units owned and increase in wealth is much more important.

Multiple homes- spreads out the risk (what if that one neghborhood suddenly becomes undesirably) in the market

One home- lessons risk of extra issues cropping up (only 1 rough to be worse than you thought only 1 home to find termites in after closing etc).

IMO if the one home is in a high demand area I'd probably lean towards just doing the one. Fewer headaches. Make sure you have a very throough inspector 

That being said I'd probably do 4 200k homes before 1 $1m home. For different reasons though

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