What would be your investment strategy to scale the quickest and why?
Choice 1: Smaller and "more affordable" market. Purchase 2-3 properties cash and renovate each property to have ~120K equity in each to rent and refinance/sell later (BRRRR). Rents averaging ~$1000 - $1300 per home per month for single family homes.
Choice 2: Hot and expensive market. Purchase 1 property- requiring a 100-200K loan on top of cash payment to rehab and acquire property. Comps in area 500-600K with high rent potential ~ 3000 - $3500 and refinance/sell later (BRRRR).
What would be your investment strategy to scale the quickest and why?
Choice 1: Smaller and "more affordable" market. Purchase 2-3 properties cash and renovate each property to have ~120K equity in each to rent and refinance/sell later (BRRRR). Rents averaging ~$1000 - $1300 per home per month for single family homes.
Choice 2: Hot and expensive market. Purchase 1 property- requiring a 100-200K loan on top of cash payment to rehab and acquire property. Comps in area 500-600K with high rent potential ~ 3000 - $3500 and refinance/sell later (BRRRR).
Choice 1 of course. "Hot and expensive market."'s crash, and when they do, they crash hard.
Investor · Salt Lake City, UT · Member since 2016 · 287 posts · 270 votes
8y
@Crystal Cody it’s going to depend on your goals but also the specific market. Here’s some awesome possible upsides to the expensive market: the kind of renter who can pay 3-4K in rent will most likely be very responsible...A class rental will require A class tenants. Also, if it’s a generally expensive market then perhaps we can extrapolate that there’s is population growth and a lot of high paying jobs. If that is true and if it’s likely to continue long term then that house will likely continue to rise in value along with rent rates (long term is key here). Also, a small you scale would you rather have 10 A+ rentals in your own backyard bringing in 35k a month in gross rents or 30 rentals in a market you may have to fly to bringing in that same amount?
There are counter points to each of my arguments but there is definite upside to the expensive market in my opinion.
Rental Property Investor · Fitchburg, WI · Member since 2016 · 91 posts · 60 votes
8y
I would say option 1 every time. If for no other reason, because by purchasing a single, more expensive property, you only need to have one vacancy there goes all your rental income. Additionally, it could be harder to lower rents if you had to to fill the unit if the cash flow isn't as good.
By getting a few less expensive but good cash flowing properties, IMO you are safer. Personally I would rather have two or three units rented at 1000-1500 per month than one unit at 3000-4500. The lower priced properties are also safer in a downturn because it will be easier to find someone to rent at that level. Let's say the person who WAS paying 3-4000 per month in rent lost their job and has to get a lower paying job--now they are going to be looking at the 1000-1500 per month properties.
There are upsides to the more expensive property too. Having one property is easier to manage. Higher end properties usually require less maintenance, and more well-off tenants are generally treat the properties better too. Appreciation is the icing on the cake, don't count on it. Buying in a hot market with the hope that it appreciates is essentially a gamble.
Just my 2 cents. I think it is safer BUT it all depends on your numbers. If you're saying you can get a property at $120k that rents for $1300 per month that is 1%. But that $500 or $600k only rents for $3000? That's only 0.5 or 0.6%.
Rental Property Investor · Oklahoma City, OK · Member since 2017 · 1k+ posts · 694 votes
7y
agree with @Account Closed it's risky. OKC is incredibly insulated to recession, when other markets saw 20% drops in the last turn we say around 6%, but it's not exciting at all. We're steady cash flow all day.
Rental Property Investor · Northern Virginia · Member since 2019 · 793 posts · 620 votes
5y
The decision on where to invest is all dependent on your investment goals. Do you want cash flow or appreciation? What do you plan to do with the cash flow? Do you need the cash flow now or in the future? What is your tolerance for risk? Do you plan to hire a property manager or self manage?
While there are advantages and disadvantages to both options as have been explained above, it all comes down to answering the question of what are your goals?