What option is best now: LTR, STR or CD

Question

Hi David, Maggie from Chicago area. I’ve been listing to your show for a year now. Great Show! In November 2022 we got our first long term condo which is producing $170 monthly positive cash with 7.4% rate (investment loan) . Our goal this year is 2-3 more doors. It seems like we can’t make up our minds what kind of real estate to do next. I always get into this analysis paralysis mode and going in circles. We have $500k cash that we can put into down payment plus another $100k to be used as security if something bad happens. I have a good W2 job and approved for $1.5M for investment property. These are the options we are considering and was hoping if you were in our shoes what would you do with that amount of money in the current market conditions.  OPTION 1: Short Term Rental in the Smoky Mountains $1.5M with good view and established rental history, making $3,500 monthly cash flow (if this is possible in the current market).  OPTION  2: Long Term in the area 4-plex, using the B.R.R.R.R method or not with about $1,000 monthly cash flow.  OPTION 3: Long Term in the area  5+ units BUT this put you in commercial loan (don’t know anything about) maybe paying it cash? We are looking at one now for $825k - 6 units $98k rental income $58k NOI - $4,800 monthly.  OPTION 4: Put the cash in CD – You can get 5.15% for one year. On $500k = $25,750 or $2,145 risk free -OR-  6 months CD for 5.05% = 12,470. Thank you for your time!

Kevin Luttrell · Answer

While you figure this out, throw your money into a high yield savings account. CIT Bank platinum savings is earning 4.85% APY currently, and it's just a basic savings account with no fees and no minimum length of time you have to keep the funds in. There are several other banks with similar offerings.

Paul De Luca · Answer

Depends on what investment strategy is most appealing to you since they can all work. Do you want a more hands on investing experience jumping into the STR game and are you okay with managing from OOS? Do you prefer to own and manage locally? I think 5 units+ would be a good move but you should probably chat with a few STR specialists in the Smoky Mountains to see if that plan would even be feasible.

Joe Freeman · Answer

I have a few of investors I work with that have been snagging up SFR's in the south suburbs and have been seeing good returns on those investments. As Tony said getting 4 condos instead of (1) fourplex makes more sense in today's market than years before, but instead of condos I would go for rental ready SFH's in the south burbs.

Tony Angelos · Answer

Hi @Maggie Kouzov, also from Chicago. That's a pretty big chunk of change and sometimes almost a handicap when you don't know how to fully deploy it. It really comes down to what your goals are both short and long term. What you required rate of return is to make something a "good investment" and how involved you want to be with it.

It is my opinion (chicago realtor) that 2-4 units are very expensive right now. I.e. you can buy 4 condos for less than 1x 4 unit. Just because there is soooo much demand and quite frankly people conisder too many things viable options for house hacking. You can find much better returns in 5+ and in some areas you'll find things close to 8-10 caps in Chicago itself.

I agree with @Kevin Luttrell that you should put it in a HYSA until you find an appropriate next step. I'm here in Chicago too so feel free to reach out and say hi anytime!

What option is best now: LTR, STR or CD

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