I would love to know the answer from people with experience. If you lived in Central Arkansas, where house prices and taxes are lower than average.
Would it be better to use the money for 20% down payments of 4-6 houses?
Or buy smaller houses for cash, and then refinance, and repeat as often as possible?
Or buy one house and rent it for a large cash flow?
In my limited opinion, these are the obvious options. But I would like to know what people with more experience think.
My goals are to use real estate for my retirement, with rental properties. For the next 5 years or so, I’d rather have tax deductions than extra income.
Also a bonus question. If you earned about $100,000 more than you planned in 2017, how would you invest to best limit your tax liability?
My suggestion is to buy multiple properties. There's a lot of reasons for it. For example, if you buy one $100k house and goes up 3%, you made $3k in application. If you buy 5 houses with $20k down each, you have five $100k houses with mortgages. If they go up the same 3%, you made $3k X 5 houses = $15k, 5 times more than buying one house. How about the risk? If you buy one house with $100k, if the house is vacant, you lose 100% of the income. If you own 5 and lose one tenant, you only lost 20% of the income. With mortgages, you get to write off the interest, so effectively the mortgage becomes really cheap, cheaper than the rate you get. Also, a lot of equity in your house means it's easier to become a target of a lawsuit.
If you can get a really good deal with cash purchase, that may not be a bad thing, as long as you refinance, and take the cash out.
Well will your debt to income ratio allow for you to pull 5 mortgages? If so then sure you can go that route. I know that would not work for me so I just bought cash only deals that I more than doubled the equity in so I could do cash outs. You will get the best bang for the buck buying cash only deals. If you can do most of the work that's a huge bonus. I do all of the work with my partner. We hire nothing out aside from some HVAC. It's much better to do the work instead of paying your hard earned already taxed dollars on labor. That's all assuming you are buying local.
If you can I’d buy 4 properties.
I would go the multiple houses route
I'm with everyone else. 20% on 4-6 houses. I think if you're going for depreciation, you're going to get the most of it that way.
Two caveats there: 1) You have to be comfortable with the fact you'll suddenly (depending on how quickly you can find deals) own quite a few units. 2) Depreciation helps you much more in certain tax brackets than others. If it doesn't help you now, it will still help you later, but I'd talk to an accountant to make sure you're going to get the benefits you think you'll be getting with this strategy.
I am also planning to get my real estate license. Mainly so that we can look at a bunch of properties without having to drag another agent along. Especially early on when we are looking to see what is available.
Personally I would go with the multiple house route, because I care about cashflow, but if that's not your concern I think you should really look into going with one large MF property. (Depending on your area you might be able to get a small apartment complex but thats more cashflow again)
First, using 100K on a property means that you can get 500K house in an A+++ area. @Soh Tanaka you mentioned that 5 100K houses that appreciate at 3% rate would result in 15K. Well a 500K in a better area might appreciate at a 5% rate. And 5% on 500K is 25K.
Since you are also concerned about tax brackets and not the cash flow. I'm assuming your current W2 job is a good one. Its a lot less stress dealing with one property than it is dealing with 5 properties. As far as depreciation and mortgage interest deduction goes, it should be about the same due to the price of the house being equivalent to the price of the 5 properties.
I would not buy multiple properties. It is more work and much more costly to maintain. You want to use numbers to your advantage. The greater number of doors under one roof will reduce all maintenance and cap expenses per door over the long term.
I would advise you purchase the largest apartment building (maximum doors) possible with the 100K as a minimum DP.
Use bank financing and only buy good deals!
@Pat Alford I would go with several properties (Of course, depending on condition, age, rehab, etc.) Or, MF with several doors would be a great way to go. I would have to see the properties to make that decision.
Bonus question: Invest your $100,000 with someone that can offer you an incredible rate of return on your money, backed by real estate locally. I am a Realtor and REI in central Arkansas. Message me if you want to talk.
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