Interest rate cuts, should I buy bigger?

Question

Hi all,

I'm a newer real estate investor in the San Antonio/Seguin area who is looking for my second property. As a newer investor, I've opted to house hack & STR my first property to save up money. My next property I'm currently looking at is only $120,000 and is 4 bedrooms which I plan to house hack & STR as well. I've been getting into these properties with 3.5% owner-occupied with the one year requirement. My question is with new lower rates, should I try to lock in something in a better neighborhood for more? I have a steady income that will more than cover the mortgage. So I've calculated I can go up to around $250,000 without being too over-leveraged. Should I go bigger for better cashflow and possibly appreciation? Thanks in advance for any replies!

Account Closed · Answer

@Adam Pond

Problem is, rent price is not proportional to house price.

Usually, say a $120k house can rent at $1000 per month, then the $250k May be able to rent at $1400 per month etc.

The bigger house, the worse rent per Sq ft.

Adam Pond · Answer

Hai, amazing timing! A property just came up on the MLS that is $280,000 and has the chance to be converted into a triplex. Though I need to learn what all needs to be submitted with the city to make that happen.

Hai Loc · Answer

@Adam Pond

Go for a multi..

Its easier to rely on 3-4 tenants vs just one..

I guess 2-4 units will only qualify

Adam Pond · Answer

Hi Ran, that is a very good point! I plan to house hack either property. The $120 is a three bedroom and the $250 is a four bedroom. Each room I'm expecting roughly $550. So these give me the $200 vs $400 cash flow. Thanks for your response.

Adam Pond · Answer

Unfortunately to get owner occupied down at 3.5%, I can only choose one to live in.

Mary, I agree with you that location is a huge factor. For that reason I'm leaning more towards the 250k option.

Mary M. · Answer

Real estate is all about location. IMO it is always better to buy the best property you can - especially if you are going to live there! (Of course making sure you can afford it etc)

Theresa Harris · Answer

I would buy two at $120K.  Later on if you want to sell one, you have more flexibility plus if one is vacant, you don't lose as much money.  You will have extra costs with closing.

Adam Pond · Answer

Thanks for your reply, Theresa. If hypothetically I were to cash flow $200 on the $120,000 and $400 on the $250,000. Do you believe its smarter to go for the more expensive property with out current interest rates being so low? I do have the means to pay for either in the case they become vacant. Thanks.

Theresa Harris · Answer

@Adam Pond  With bigger you have higher risk if it is vacant.  Get solid places that make sense financially.  You want to balance quality with quantity.

Interest rate cuts, should I buy bigger?

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