Which "Level" of Rental Property Makes Sense For Me?

[Sean Confrey]

Hello BP, I am learning so much from everyone and I hope I can contribute to newbies like myself once I have some experience to share. 

I am currently a homeowner & have 100k equity built up with a remaining mortgage of $125k and 15-20k cash to invest with. I am looking into purchasing my first investment property - most likely SFH as I will be priced out of multi-family unless an incredible deal comes up.

Two options I am considering & would appreciate some input:

1. Cash out refi & buying a "lower level" property for cash, making minor improvements & renting out.

2. Cash out refi to finance down payment of "better" property (nicer house, better location, higher rent, etc..), make improvements as needed & obtaining 2nd mortgage on this investment property. **

**I shouldn't have an issue obtaining 2nd mortgage as I have excellent credit & decent debt-to-income ratio

Quality of tenants & appreciation is of utmost importance to me but cash flow is king right... 

Any feedback or suggestions on what a pro would do is much appreciated!!

Raleigh, NC is still experiencing a strong sellers market but should have some opportunities pop up as a result of the pandemic. 

Thank you!

Sean

[Kerry Baird]

We started investing near Air Force bases.  My thought was that there is only one General or Col (or a handful of people at the top). And there are a ton of airmen or sergeants at the bottom, as with a pyramid structure.  I don't want the least experienced folks, who don't know how to take care of my property.  Instead, I like the broad base of blue-collar trending to white collar individuals, who are likely to have stable jobs and will have or soon will form families and stay awhile.

Over the years, these have been called bread-and-butter houses or starter homes.  I personally prefer garages to car-ports, as I want tenants to bring stuff and stay. I don't want to be painting siding every year.  So my personal starting point is a 2 to 3 bedroom, slightly dated, brick or block home, with a garage that is near transport corridors.  Near an older mall, near a park.