One house or five?

10 Replies

I have a hypothetical for you BiggerPockets readers. Would you rather pay $100,000 cash for a house and have no mortgage or use the cash to buy five houses with a mortgage and $20,000 down payment each?

Hi Ron!

I think that depends on one's intention of buying. If I want to buy house for my own, then I'd go with the first option. No mortgage no headache!

But if I want to do business, then buying five houses with a mortgage would help me more I guess. 


Thanks for the reply! I realize that I didn't clarify that I meant purchasing houses for rental income.

I know this is not the common thinking, but I would get one good cash flowing house. Then all the profit from that would be put aside and when I have 20% down for the next one, buy another. 

Depends on the cash flow...5 spreads the risk...1 vacancy on higher end can sink you without sufficient reserves...


I would never buy a rental home (especially single family home - SFH) using in this case a $100K. Regardless if it's free and clear. Never tie up your money... Even if you could pull it out at a later date. Also note, homes could depreciate causing loss. I think we've learned to never say "never".

As for five... I would try and stretch it to 10 homes. Lol. I know how I am.

But it all depends on what the rental amount minus all expenses equates to. Just subtracting P.I.T.I. doesn't constitute all expenses. 

The only time it would be worth buying a home (per se) when the rental only offsets the mortgage with little to no profit, is if I was able to buy it on terms with little to no money down. 

Another thought, I would consider is multiplexes (up to four units)... As I perfer those type of properties vs. SFH's. Once a SFH is vacant, then it's 100% vacant and a liability (no income, repairs, vandalism, etc).

So I'm sure you get the idea with my direction in multiplexes.  

Of course, in your case, hypothetically speaking.

Just my two pesos.

Big Henry

All depends on your desire in relation to risk, in both cases your income can be approx. the same.  If you clear 1000 on a single house, may only clear 200 on each of the five houses after principal and interest payments.  I would searh for killer deals on two 50k houses and pay cash, in 2 1/2 years buy another, then 1 year and 9 months buy fourth, then 1 year and 3 months buy fifth.  So in 5 1/2 years there are 5 paid for houses now bringing in enough to buy another each year or the buy 5 senario up front would have about 9 1/2 more years to pay off the original 5 houses.  Even if you have to pay 100k each, would take about 11 years to pay for the 5 houses, far less than a 15 year mortgage!  Heard it said numerous times, 100% of the forclosed houses had debt and know I sleep better not worrying about rents coming in to cover a mortgage.

Note to the argument of the tax deduction for the interest paid -- if you have to pay out $600 a month in interest to save maybe $200 off your taxes, you are still behind by $400 a month per house.  So it is actually pulling nearly 5000 out of your pocket each year per house or in the case of 5 houses, $25,000 per year...thats a $100,00 house and $1000/mo every 4 years you are losing by being in debt!  Just something to ponder...

@Ron Boling  

Adult diapers....


It depends on you, are you a newbie? 

Are you a 40 year real estate investor winding down for retirement? 

What other money do you have? 

If $100,000 is 100% of your assets, then you probably should  not use it all up and leave yourself with no reserves? 

Do you have a job or another source of income? 

Will this 1 or 5 houses be your sole income?

So many more questions would need to be factored into the decision.  If it were me and I was brand new I'd go for the 4 houses, but its not.

In fact my first 5 were all essentially 100% financed, because I didn't have $100,000 to put down for either 1 house or 5 houses.  And for me it wasn't the first 5 it was the first 11 that were essentially 100% financed.  The 12th property broken the chain.

If I had $100k free to invest I'd probably put drop $50k on two houses. 

That is a black and white scenario and usually things are a shade of gray.   If you could buy houses for 20% down and they cost $100,000 and you have $100,000 I think it would make the most sense to buy four houses.  That would leave you with $20,000 in reserves.  If they are cash flowing and certainly wouldn't be buying them without cash flow, I'd wait until my cash on hand went up to at least $30-35K (dependent upon many factors, such as vacancy rates and expected repair costs), then I would look to buy another 20% down property.  Rinse and repeat, but always increasing the size of the reserves a couple of thousand (at least) for each new property, before buying the next one. 

So before I bought house number six, I'd want at least $32-37K cash on hand. 

I'll add that knowing the size of your reserves is totally individual dependent.  If you have a high paying job or have a lot of money in more liquid investments and can easily replace reserves it is one thing, but if you are totally dependent upon rental income then it is quite another. 

If you had to go through the painful process of getting approved for loans then I would buy one cash, refinance and work on buying the others.  Opportunities/equity is created when you find problems and pay cash.  Your equity is created by fixing up the cash purchase, placing a tenant and presenting it to the bank.  If you were financing the first purchase with 20% down your usually limited to the type and quality of property.

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