Buy (1) multi-unit for cash, or 2-3 with a mortgage?

Multi-Family and Apartment Investing
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Buy (1) multi-unit for cash, or 2-3 with a mortgage?

Mike Malone
Member since 2021 · 3 posts · 1 vote

My partner and I have 200k cash on hand to buy a multi-unit. We've bought and sold 3 single family homes and 1 two flat over the last 5 years but would like to be more aggressive with our next move. 

Located in the Midwest - our basic question is, should we buy a 4-unit building for 200K cash, or should we focus on mortgages for 2 or more similar properties and pay all the interest on the loans?

We are looking to hold for 5 years and then reassess. Rent is roughly $600 per door. 

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Evan Polaski
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
5y

If you are wanting to be "more aggressive" then use as much debt as you can, and buy as many as you can.  But leverage increases risk, but will let you buy more property, more quickly, which sounds like that is your goal.

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  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    5y

    If you are wanting to be "more aggressive" then use as much debt as you can, and buy as many as you can.  But leverage increases risk, but will let you buy more property, more quickly, which sounds like that is your goal.

    3Reply
  • Mike Malone
    OP
    Member since 2021 · 3 posts · 1 vote
    5y
    Originally posted by @Account Closed:

    Why limit yourself to Real Estate.  Nice chunk of change could get you $60,000 a year. Takes knowledge and there is risk.   But so does Mid western Multis.

    Dealing with $600 renters doesnt sound like much fun.

    12 units @ $600,000.  Does the math work out?  Each unit is $50,000 rent of $600.  Looks sketchy to me.

     Thank you for the reply. Can you expand on that? Are you saying alternative investments etc or something alternative within the field of real estate?

    0Reply
  • Rick Trivedi
    Real Estate Broker · San Jose, Dublin CA and Florida · Member since 2017 · 165 posts · 48 votes
    5y

    @Account Closed - do you mind sharing which other investment are you referring to for $60k returns on $200k?

    @Mike Malone - I had created a simple spreadsheet with incomes, expenses, down payments. That will give clear idea on how much to leverage and what your cashflow could be. I would keep couple things in mind though - the more multi-family you have, the more exposed you are to the issues as the number of doors and tenants multiplies. If you are planning to manage these properties actively yourself, it could easily get out of hand. Also think about having backup funds in case of an emergency - leveraging too much can get you in trouble as you are spread too thin.

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    5y

    @Mike Malone

    It depends on a lot of things, but the number one would be whether you want to scale your business and number two would be if you believe we're at the top of a bubble.  If you want to grow, use other people's money and buy multiple multiples.  If you think a bubble will burst, then save your cash and buy from undercapitalized people when they're dumping their properties.  With that much cash in the mid west, you can utilize whatever strategy you believe will work.

    2Reply
  • Marc RiceBusiness Member
    Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes
    5y

    @Mike Malone

    It really comes down to your personal risk preference. More debt is more risky and pricey, but you can scale more quickly.

    Columbus Ohio is a great market, although it’s getting tougher to find 4 units for $200k in decent neighborhoods.

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    2Reply
  • Remington LymanBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
    5y
    Originally posted by @Mike Malone:

    My partner and I have 200k cash on hand to buy a multi-unit. We've bought and sold 3 single family homes and 1 two flat over the last 5 years but would like to be more aggressive with our next move. 

    Located in the Midwest - our basic question is, should we buy a 4-unit building for 200K cash, or should we focus on mortgages for 2 or more similar properties and pay all the interest on the loans?

    We are looking to hold for 5 years and then reassess. Rent is roughly $600 per door. 

     If you are trying to scale then you should try to get as much debt as possible

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    1Reply
  • Nick Shri
    Rental Property Investor · VA · Member since 2020 · 218 posts · 133 votes
    5y

    That's a decent cash to flip up to 10 properties in parallel, use your $ a bit, use OPM a bit, then BRRRR em. Possibilities are infinite IMO.

    1Reply
  • Mike Malone
    OP
    Member since 2021 · 3 posts · 1 vote
    5y
    Originally posted by @Nick Shri:

    That's a decent cash to flip up to 10 properties in parallel, use your $ a bit, use OPM a bit, then BRRRR em. Possibilities are infinite IMO.

    How would you qualify for that many mortgages? 

    0Reply
  • Steve Williams
    Member since 2021 · 7 posts · 3 votes
    5y

    As others have said, leverage can work either for or against you depending on how you play your cards. Personally, I’d recommend owning the multi family unit outright if the profits cover your nest egg and allow you to escape the rat race because, at that point, money is just a game - you can build real wealth if your living expenses are entirely covered.

    0Reply
  • Rick Trivedi
    Real Estate Broker · San Jose, Dublin CA and Florida · Member since 2017 · 165 posts · 48 votes
    5y

    @Chin Chico that was all Greek to me! Wish I knew Greek. May be I will spend sometime to understand your response.

    0Reply
  • Brandon SturgillBusiness Member
    Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
    5y

    @Mike Malone use leverage and buy the biggest f'ing multifamily property you can afford...you are in a spot most investors are envious of...stop messing around with residential properties...

    1- network with brokers

    2- buy a value-add MF

    3- improve condition, increase rents, and lower operating expenses

    4- repeat...or not...focus on debt paydown and take it easy

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    2Reply
  • Eric Gute
    Real Estate Agent · Columbus, OH · Member since 2017 · 6 posts · 9 votes
    5y

    I would say diversify your investments into multiple properties depending on the cash flows to help scale quicker as well as leveraging "good" debt. 

    1Reply
  • Chris Collins
    Multifamily Investor · Newport Beach, CA · Member since 2015 · 176 posts · 182 votes
    5y

    debt is SO cheap right now... Short answer without having a long convo with you and your partner? I'd say leverage and buy more.  

    1Reply
  • Adrian Chu
    Real Estate Broker · Seattle, WA · Member since 2014 · 1k+ posts · 427 votes
    5y

    Leverage.  Money is dirt cheap right now with interest rates in the 3s or less.  :)

    1Reply
  • Benjamin AakerPro Member
    Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
    5y

    Depends on your long-term strategy. If you are looking for a place to put your money and only planning on buying one property, go with cash. I suspect since you are on BP, you aren't looking at this property as end-game. If you buy with cash, you won't have any left to get the next one and will need to rely on cashflow of this property to save up for the next one. Do the calculation. That'll take years. If you want to do more, getting a mortgage is the way to go. Start searching for that next deal right away.

    1Reply
  • Jeffrey Donis
    Investor · Durham, NC · Member since 2020 · 1k+ posts · 691 votes
    5y
    Originally posted by @Evan Polaski:

    If you are wanting to be "more aggressive" then use as much debt as you can, and buy as many as you can.  But leverage increases risk, but will let you buy more property, more quickly, which sounds like that is your goal.

    Agreed- if you know how to use debt you can scale pretty quickly, however your risk goes up as well which is why it is so important to leverage debt correctly. 

    0Reply
  • Blake Dailey
    Investor · Ogden, UT · Member since 2018 · 295 posts · 208 votes
    5y

    @Mike Malone I agree with a lot of what has been said about debt accelerating your progress. There are certainly perks to having no debt, but if you want to grow and scale leverage is probably the most powerful force out there. Imagine being able to buy Apple stock for 20% down. 

    After you hold 2-4 assets for 5 years your equity growth is going to be much higher than if you only had one property. You can then reapply that equtity and 1031 exchange into  bigger deals with more cash flow. A 4 plex bringing in $2400/month purchased at $200k should have ample room to weather a downturn and still cash flow through it so how risky is the debt actually? Especially when locking it in at near inflation levels. Go big. 

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