I Need Guidance

[Russell T.]

I’m about to sell my house and will have about 250k. I wanted to get into rental property investing but have analysis paralysis, there are many routes to take. My wife wants to buy a property outright because the Cashflow is better. But I see on social media other ideas about possibly buying multiple properties with less Cashflow but could possibly have greater returns long term. What are some of your opinions? 

[Kerry Noble Jr]

First, do you have another residence to move into?

I would take that 250K use it to Leverage smaller multifamily in the midwest. I see youre in HI

[Dustin Allen]

@Russell T.

There is no wrong answer here. If you and your wife are more comfortable buying rentals outright in the Dave Ramsey fashion, you’ll likely be able to save up for the next one faster or at least a down payment for the next one faster. You will have a higher cash flow and be able to handle any unexpected repair costs or capital expenditures.

Keep in mind that you could always put leverage on the property after the fact. It will be at a slightly higher interest rate than if you used a purchase money mortgage to buy in the first place. Nothing wrong with starting out safe. People will scream at you about “opportunity cost” but you’re also buying peace of mind.

If you do choose to leverage and buy more than one, be sure to hold some in reserve as you should for every property that you buy. Run the numbers and be very realistic. Make sure there is adequate cash flow to handle unexpected vacancies or repair costs (they will happen eventually).

Either way, you’re in a great position to get started. Run multiple scenarios and sit down and go through it with your wife. Pick whatever let’s you both sleep at night and learn everything you can along the way.

[Russell T.]

Quote from @Kerry Noble Jr:

First, do you have another residence to move into?

I would take that 250K use it to Leverage smaller multifamily in the midwest. I see youre in HI

 Yes we have another house to move into

[Russell T.]

Quote from @Dustin Allen:

@Russell T.

There is no wrong answer here. If you and your wife are more comfortable buying rentals outright in the Dave Ramsey fashion, you’ll likely be able to save up for the next one faster or at least a down payment for the next one faster. You will have a higher cash flow and be able to handle any unexpected repair costs or capital expenditures.

Keep in mind that you could always put leverage on the property after the fact. It will be at a slightly higher interest rate than if you used a purchase money mortgage to buy in the first place. Nothing wrong with starting out safe. People will scream at you about “opportunity cost” but you’re also buying peace of mind.

If you do choose to leverage and buy more than one, be sure to hold some in reserve as you should for every property that you buy. Run the numbers and be very realistic. Make sure there is adequate cash flow to handle unexpected vacancies or repair costs (they will happen eventually).

Either way, you’re in a great position to get started. Run multiple scenarios and sit down and go through it with your wife. Pick whatever let’s you both sleep at night and learn everything you can along the way.

 Thanks for advice would I have to look for a management team to find an out of state property? And how would I start with that

[Bob Stevens]

Quote from @Russell T.:

I’m about to sell my house and will have about 250k. I wanted to get into rental property investing but have analysis paralysis, there are many routes to take. My wife wants to buy a property outright because the Cashflow is better. But I see on social media other ideas about possibly buying multiple properties with less Cashflow but could possibly have greater returns long term. What are some of your opinions? 

 Cash always, 10% or better net caps are to be had. With 250k you can get 2 SF with about $1300 rent per house, as mentioned 10% or better net caps, Its ALL about knowledge and your team, 

Good luck 

BTW I just picked up 10 minutes ago a 4/2 all in 80k, rent will be 1300 1400 , not to bad :) 

[Benjamin Aaker]

Cashflow is necessary. You don't want to be in the red or you'll lose the investment. That being said, using debt can help you expand a lot faster. You can put lower equity into the properties and allow the equity to build over time.

Buying outright for straight cashflow has a risk: It's much easier to pay too much for the property - it still cash flows even at crazy prices a lot of the time. The risk here is that you have income, but it still takes years to build up enough cash to get deal #2, where with mortgage you can buy 3 or more right away.

If you must buy outright, make sure the numbers would have worked for financing as well. You never know when your wife will begin to agree with you and you will want to refinance.

[Dustin Allen]

Quote from @Russell T.:

Quote from @Dustin Allen:

@Russell T.

There is no wrong answer here. If you and your wife are more comfortable buying rentals outright in the Dave Ramsey fashion, you’ll likely be able to save up for the next one faster or at least a down payment for the next one faster. You will have a higher cash flow and be able to handle any unexpected repair costs or capital expenditures.

Keep in mind that you could always put leverage on the property after the fact. It will be at a slightly higher interest rate than if you used a purchase money mortgage to buy in the first place. Nothing wrong with starting out safe. People will scream at you about “opportunity cost” but you’re also buying peace of mind.

If you do choose to leverage and buy more than one, be sure to hold some in reserve as you should for every property that you buy. Run the numbers and be very realistic. Make sure there is adequate cash flow to handle unexpected vacancies or repair costs (they will happen eventually).

Either way, you’re in a great position to get started. Run multiple scenarios and sit down and go through it with your wife. Pick whatever let’s you both sleep at night and learn everything you can along the way.

 Thanks for advice would I have to look for a management team to find an out of state property? And how would I start with that

 There are unlimited resources on this site. Start reading everything you can about long term investing. Look up the “core 4”. Figure out where you want to go and why and then start investigating your target market thoroughly. It’s not easy but it is a simple process. Learn first then do. If you try to just throw money somewhere, it’s going to be like playing roulette. You might win, you might not.

Take some time and make a solid plan. You’ll likely want to travel to your ultimate location first and learn more about it. Find some meetups in the area when you do and talk to as many people as you can. Talk to the coffee shop employees and the hotel workers where you stay. Locals always know what’s going on in an area.

[Simon Ashbaugh]

Quote from @Russell T.:

I’m about to sell my house and will have about 250k. I wanted to get into rental property investing but have analysis paralysis, there are many routes to take. My wife wants to buy a property outright because the Cashflow is better. But I see on social media other ideas about possibly buying multiple properties with less Cashflow but could possibly have greater returns long term. What are some of your opinions? 

 Is a house hack an option where you live? Not sure what the MF options look like in HI. If thats an option i would get a mortgage on one there and use leftover capital for midwest multi-families!

[Ryan Thomson]

@Russell T. i agree with @Simon Ashbaugh

[Russell T.]

Quote from @Ryan Thomson:

@Russell T. i agree with @Simon Ashbaugh

 Thanks for the advice. The median price for a house in Hawaii is $1 mil and I have a family of 5. Not sure house hacking would work. I can look into it, thanks

[Jose Fernandez]

If you buy a house cash, the cashflow is better after year 8+ to 10+. I say that because that is about how long it will take you to break even on the purchase price (a bit longer if you account for loss of interest if the money sat in some savings account or other investment). Paying cash means you are giving up $250K (or whatever you are spending) now, to recoup it $2K to $2.5K per month. So, if you are o-kay with giving up all your cash so that you make zero return on it (besides appreciation) for 10 years, then you will be greatly rewarded after year 10.

OR

You can put down 20% ($50K) on 3-4 properties and begin cash flowing immediately. It will just take 23 to 30 years for the tenants to pay them off for you. If you are o-kay with debt, then you will be rewarded with exponential growth.

[Ryan Thomson]

@Russell T. I see. Buying a house with all cash kills your ROI numbers. If you are after cashflow and short term passive income then it may be the best move for yourself. Although I imagine your Cash on Cash return may be better with a well paying stock dividend and way less work.

Consider the opportunity costs, run the numbers, and think about what's important to you now and in the future and I think a clear answer will emerge. 

[Mariah Petzoldt]

Hey Russell, 

There are many ways that you can go in real estate investing and it really will depend on what you and your wife are comfortable with. Your money will go further in other US markets but you will need to have teams in place there. 

Step 1- figure out your overall GOAL with investing. Are you looking to retire early? Replace an income? Make an extra 200k via rental income per year? Set a Goal with a Due Date like "I'm going to replace my 200k W2 income in 5years with rental income." 

Step 2- Buy Box- what type of property will get you to your goals? Do you want to go after 4 STRs and self manage them and be in the hospitality business to make 200k per year? Or buy 3 16unit apt buildings and outsource management and not deal with tenants to make that 200k? -then you figure out what market has those types of properties that fit your criteria.

Here is a free event that might help https://www.biggerpockets.com/...