advice on how to purchase duplex number 2

5 Replies

ok so I have recently made my first purchase of a duplex here in Texas. I can afford to make the monthly payment out of my own pocket but my question is should I try and pay off the loan with the income from the rentals and use this duplex as collateral for my next purchase or should I just save the income and use it as a down payment on my next purchase? please help!!

Kendell

@Kendell Wolfe  One of the advantages of real estate is that it allows you to safely leverage your investing (unlike, say, buying stocks on margin).  I infer from your post that you are comfortable with leverage (with mortgages) and that your duplex is cash flowing well enough to pay off the mortgage.  Given, that, and assuming your debt to income ration would not prevent you from getting another mortgage, you best option would be to save up the down payment for you next purchase.

@Kendell Wolfe  I agree with Larry. We just bought our first duplex as well, and we're planning to save the cash it generates (in addition to some owner contributions), and put this towards our next one as a down payment. 

On your first rental, after paying expenses and mortgage, are you happy with the rate of return with respect to the down payment? (Cash-on-Cash rate of return)  Is it in the 5-10% range?  If you're happy with that return then replicate it with a second one.

Keep in mind, last year the stock market returned something more than 20%.

Other considerations are that you could borrow at a fixed rate (5%?) for 30 years.  Your rate of return will go up with inflation but your mortgage rate will remain fixed.  That's a good thing but a bit of an assumption on the future.

@Kendell Wolfe  did you calculate (estimate) your rate of return?  Decide to buy another soon?

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