With current high interest rates, should I put $260K into one 3/2 rental, or two?

[Kenneth S.]

Looking for feedback on my particular scenario. I am selling an existing investment property because of the distance to where I live, and plan to acquire 1 or 2 investment properties closer to me. I will net around $260K from the sale, and I am doing a 1031 exchange. I am looking for feedback on whether or not I should put the whole $260K into 1 rental property or $130K each into 2 rental properties. Back in the good ole days of low interest rates, I would have no question and go ahead with 2 properties. However, with today's higher rates, I would be financing more. The properties I am looking at are 3/2 around ~1700-1800 sq ft and priced around $380K-$400K. I'm kind of leaning towards acquiring 2 properties with the hope of being able to refinance to a lower rate at some point in the future. 

Please share your thoughts and what you would do, thank you!

[Kevin Sobilo]

@Kenneth S., marry the property but date the rate! The rate is temporary, you can refinance to a lower rate when the opportunity arises. 

Once you put equity into a property, its hard to get back out to deploy more advantageously later. It costs money to refi or to sell.

With multiple properties you have increased depreciation write-offs! You have increased mortgage paydown! You also have increased market price gains (or losses)!

If you can get multiple replacement deals that make sense now, they will only make BETTER sense as time goes and you manage them into a better cash-flow position by making improvements, rent increases, debt refinance, etc.

[Alex Olson]

More is better in my opinion but buy correctly - don't overpay. It's ok to break even for the first two years if you have to. Your tax benefits and wealth building will thank you!

[William Powell]

These are what I call good problems. It's easier to get one good deal than two. However, if you are buying just for appreciation in a good market like Nashville and you got the income to handle any rough times that can show up I'd grab two properties and let the magic happen. In a few or more years you're back making this decision again but this time with $520k. Great job by the way and good luck.

[Cara Ledman]

I agree with what everyone has said so far! Don't overpay, and keep in mind that interest rates will fluctuate. As someone always wanting to know more about the market, thanks for the good insight guys!

[Luka Milicevic]

@Kenneth S.

Personally, I would push for 2 properties and at 130k you should have enough. 

I would put a smaller down payment on 2 vs a larger one on just 1 property. Leverage is the whole point of investing in RE. 

PS: I love your trigger discipline in your profile picture!

[Debbie Fales]

You didn't mention if the rental properties will be STRs or LTRs but I'd factor in a cushion for potential vacancies. You want to make sure that both properties will cash flow, and with higher rates, that becomes more of a challenge. You'll want your DSCR to be well over 1.0.

Good luck! 

[Jonathan R McLaughlin]

its one thing to make very little on a good property, but quite another to have to feed the beast. So I'm not sure what is best, it depends on your margin. 

If one is substantially better than the other (location, condition, price to value, yada yada) I might be tempted to push the cash in there. In the event of rates lowering you could refi and use the money then.  

7% paydown is no joke as a piece of your return, so as long as you buy well you will do well. 

Funny how most things come down to that.

[Kevin Sindorf]

Multiple properties if you can swing it!  If the numbers make sense to acquire two properties and they cash flow at the current interest rates, you can always refinance later and see a big increase in profit when the rates correct themselves.  Who are you using for your 1031 exchange?  I am looking to connect with someone who handles these in the Nashville area.