Starting small -- or big (keep my rental or sell it)

[Ryan F.]

This is my "dillema". Not really a dilemma, more just my thought pattern. 

I have 1 rental property, which I inherited. It is worth about $100k and has a $25k HELOC on it -- therefore, after closing and paying off the HELOC I'm thinking I would walk away with about $65k.

The HELOC is $120 per month with $400 in taxes per month and $80 in insurance per month. Renter pays everything else. $600 total expenses and it rents for $1100, resulting in a $500 cash flow per month.

I could:

1) Keep this property (it's in a suburb with the city pushing in on it a bit), and save up $20k in the next year to purchase another 100k rental property. And go that route every couple of years or as soon as I could save another $20k.

OR

2) Sell my rental property, take the $65k and attempt to purchase THREE 100k rental properties, each with $20k down.

OR

3) Sell my rental property, take the $65k from it and a little savings and purchase a 10 unit apartment building carrying a $300k mortgage with a supposed $35k cash flow.

Thoughts?

[Rick H.]

"Don't wash your socks for a year". That was the advise someone gave to a relative after their spouse died.

The point is not so much about the emotional shock, which you have not discussed, but the adjustment period of learning to think like an investor. 

I got zero education about investing from my family and I'm fine with that. At least I didn't have to unlearn as much as others sometimes do.  Your biggest opportunity, IMHO, is to focus on the educational aspects of investing, including different real estate types, advantages and disadvantages of each, as well as paper (notes) and other instruments for cash flow. This process will largely answer your question for you.

Many people have become rich buying SFR's as they're much more liquid than bigger projects, and probably more forgiving if you make a big blunder. Personally, I like paper, however most notes don't appreciate (unless you bought at a discount and can realize the gain from the spread).