Where to put my eggs?
Hello BP Community!
Knowing what you experienced investors know now, given the current housing, and economy situation, how would you attack if you were us?
My partner and I live north of Boston and we're looking to start our real estate investing portfolio with small multifamily properties within Route 128 (about 10 miles of Boston). We're both 6+ figure W2 employees, 770+ credit scores, and currently are co-living with her parents, so our expenses are very low. We are qualified for 850k at 6.10% and potentially could afford more as our DTI is strong. We are hoping to eventually replace my partner's income with cashflow and have my income continue for a while to make us more financeable. Also, I only work three days a week currently so it gives me a lot of flexibility to invest and work.
We have a few thoughts:
1) Currently, it seems like we would not gain much by house hacking; besides lowering our down payment with an FHA loan and having more capital to use. We could possible both be able to acquire two properties <500k with FHA with the caveats of being in a market further from Boston, being required to live in one of the units (unless we commit mortgage fraud- not recommended I hear), and having lower cash flow since we'd be living in one of the units instead of collecting rent. The upside could be that now we have two income properties appreciating, building equity, depreciation, "easier" to learn on, and leverage to name a few. Cons would be possibly less appreciating market, more challenging tenant class/pool, more properties for management/repairs.
2) Taking FHA out of the picture for example above, would going all in for example on a 850k property within a couple miles outside the city be a better play than going further out and acquiring two <500k properties? A few pros and cons for 850k option that we thought of: pros- higher potential for asset and rent appreciation, higher potential for tenant quality/pool, lower vacancy rates, one location for maintenance/repairs. Cons- using all of the capital, potentially biting off more than we can chew? Pros and cons of the two <500k properties are the same as above in #1.
3) It seems like utilizing all our capital at once and waiting another 12-15 months before being able to purchase again if we are solely relying on our W2s for savings would make scaling a "longer" process. But, at the same time, it isn't about the number of doors that matters necessarily; but more about value of the property(ies). You can argue that the 850k property has a "better" upside in terms of an appreciating asset and market rent, which would possibly make it a lower risk. Where the other properties further our are less expensive but also less appreciating and a different tenant class/pool.
4) With all that being said, it would seem that all in on a 850k property would be a better option financially. We could go all in, potentially cash flow year 1, let property and rents appreciate, cash-out refinance 12-15 months later, and repeat the process. Every year we'd ideally reduce the purchasing time line from 12-15 months to 8-12 months, to 3-6 months depending on their value, ROI, economy, and housing market.
We wanted to ask the vast knowledgeable community about any blind spots or pitfalls we could be falling into. Without concrete numbers and other metrics, we understand a perfect answer doesn't exist regardless. Our goal is to continue this journey for the long run and don't necessarily have to leave our W2s right away, but within the next 3-5 years would be great to have my partner out of the W2 world and ideally helping manage/run our investing portfolio. Looking forward to hearing about any oversights and other general things we didn't think about!
Thank you all!