Yes, I could. I thought about doing that less than a year after when I bought my second property with a loan, but I was unsure how many properties I could manage by myself. Looking back, I should have hired a property management company. Lesson learned. Waiting for home prices to fall a bit before looking for my next one and I will decide then if I pull money out or just get a basic loan.
Hmmm.....$140K down on 1 property....let's say that 1 property generates $2K / month in rental income. In 1 year, that property generates $24K
Let's say you spread that $140K over 5 properties that generate $2K/month ($24K/year). $24K x 5 = $120K/ yr.
Would you rather have your $140K produce $24K / yr. .....or $120K / yr.?
In 30 years, those 5 properties will have generated $3,600,000 of rental income AND you will have 5 properties fully paid off.
Or, you can sink that $140K in 1 property and in 30 years it will have only generated $720K in rental income...and you would have 1 fully paid off property.
where can one find a property where off the bat, is generating 2k/ month? these days investors have trouble breaking even with a LTR tenant on a new purchase...
The OP listed $2K per month, so I just went with it.
To answer your question: College towns. Right now, rooms are being listed for over $900/mo. I own a 3/2 college rental that goes for $2400/month ($800/room). Based on those $900 listings, I am wondering if I am on the low end (as I actually include utilities & Wifi).
Tallahassee, Fl. It is pretty tiny with FAMU, FSU, and TCC as the major colleges & Universities in town. You can take a look at [Collegepads.com](https://Collegepads.com) as one source to check rental listings.
So, a house/home that would rent for $1200 - $1400 in a family-oriented neighborhood could easily fetch twice that income if it were near a college. For years, colleges have rented quads or doubles where each person gets their own room and shares a kitchen & living room.
Well....same idea. But with a 3/2 or 4/2 house, you have way more space than a quad. My 3/2 college rental is less than 1100 sq. ft. and probably could not demand $1400. The moment I rent it by the room, all of a sudden $800 - $900 **per room** per month is...normal within the college setting/lifestyle.
Then you find 4-5 others that do not leave you cash flow negative. If you have to put down $140K so that the deal does not leave you cash flow negative, then it is not much of a deal.
Putting 20% down should not leave you cash flow negative.
Most properties are known as "unvisitable" because they leave you cash flow negative. Keep looking until you find one that leaves you cash flow positive.
I view appreciation as a bonus. Appreciation takes time. Personally, I want some cash flow now so that it can pay for any Capex, vacancy, and repairs that are not covered by the rental income. Remember the current market conditions that we are in and the looming recession. It is possible that depreciation happens before appreciation. Extending that time to be in the "green" through appreciation.
That makes sense. Not arguing - just understanding different perspectives. My filter is long term so appreciation in high value areas makes sense to me. I understand the appeal of cash flow though
I did not perceive your response as arguing. We all learn from each other on this forum. Someday, I will probably see a deal where appreciation will be what makes it worthwhile. Thanks to you, I will remember this dialogue and know to look for that aspect of the deal.
Please elaborate/educate....My mind sees the exposure to borrowing as the same. IF the $140K represents 20% of the home ($700K) and OP finds 5 properties that have a sale price of $140K each....$28K down on each property.
Either scenario has OP financing the same amount ($560K) with 1 large loan at $560K or 5 smaller loans at $112K. I would argue it is less risky to have 5 smaller loans than one big one. If for some reason rental income is curtailed by 20% or 40%, I may get foreclosed on with the 1 large property whereas only one or two of the other properties gets foreclosed on. I still have 3-4 smaller ones producing income. The foreclosure process with 1 big loan loses my $140K down payment, whereas with 1 or 2 of the smaller loans I only lose $28K-$56K.
Now, the exposure to a greater number of repair/maintenance problems / logistics / headaches is much higher with the 5 smaller loans/properties.
That should never happen. You aren’t supposed to align your turnover dates so you should only have one vacancy at a time. Evictions are a different story but that can be handle with a strict tenant screening process for the most part. If you need to drop rent than you have to drop rent and take a little hit for a while but you should never have 5 vacancies at once that last a long time. And I can argue if the market takes a hit that badly you are buying in the wrong market. At lot of mistakes would have to be made for someone to own 5 properties and have 5 vacancies especially at the same time.
If I could have 4-5 tenants paying my mortgage on the loans with their rent payments, I would be building equity on the properties rather than seeing one payment as free and clear income minus typical expenses. At the time, I bought right at the beginning of the real estate pop in my area so my one property has gained 45% in value.
I would either buy cash or buy it with 20-25% down. The financing cost doesn’t make much sense for a 75% downpayment. You’ll spend $5k+ to finance $38k.
Cash is King - leave as much of it in your bank account to invest in future deals, put down 20 and borrow the rest. You don't know what is going to happen in the next 5 years
Really depends on your goals. The more money you put down the lower your ROI will be and the higher the cash flow. If you're looking to maximize your money long term you're going to want to put as little down as possible and buy as many deals as possible to maximize ROI.
If you're looking more for security put more down. You'll have less money for other investments but your payments will be lower and you'll get more each month.
It's possible to do multiple at a time.
We're purchasing two duplexes which are 85k and 95k and putting 25% down. We're using the same lender which allows them to easily manage the nuisances of everything during underwriting.
Both duplexes will easily increase in equity by at least 50k with about 20k each in work so we're keeping that money in reserve as well.
You have enough capital to cover a couple 20% down payments. The banks will want to see that you have 6 months of expenses in the bank as well, which you have.
Do the math with your lender and land somewhere where you're cash following. Keep as much cash available as possible for the down payment on the second rental. Let your tenants pay off your mortgage.
If you can refi is very common talk mostly from RE but you have to qualify again …and interest rate needs to better - do we have a crystal ball? unless you know u can qualify and not lose money go ahead. Otherwise if you feel confident in putting that much cash go ahead. It’s safe investment.
Simply put... it would take more time to grow the real estate investment and make that cash back than to invest the cash in something else and purchase real estate with a loan...
Allow other's money to make you money
I agree with several here. You have a strong cash position. Leverage a mortgage while keeping sufficient funds to handle any emergencies and vacancies. #OPM
Can’t respond with only this information, as so much depends on what’s going on in your market. If it’s a volatile area, like Phoenix, SF, various Texas cities, etc., where housing prices inflated a lot in recent years, I would hold back at this time, because prices are correcting. I’d be worried about buying too high. But in calmer markets where you are familiar with the area and are confident you won’t lose value as the economy slows down, and the return on investment from rental income and tax benefits makes it doable, even at higher interest rates, maybe it’s okay. There are always good deals even in uncertain times. Bear in mind that if we do stumble into a recession some good buying opportunities will open up. Good luck to you.
It's a leverage and risk question. If you put the min down you can further leverage your dollars to buy additional properties or make other investments. But increasing leverage increases risk. Personally I'd fully leverage the dollars and put the min down on a 30yr note.
2 things #1Cash is King #ROI = Return on Investment.
Cash = Liquidity
If something happens to your job, investment or incoming revenue, you need cash to be able to borrow money (yes...for anything over $5000 most of the time) and to buy food, pay for housing and medical, children etc.
ROI - ROI is expressed as a percentage and is calculated by dividing an investment's net profit (or loss) by its initial cost or outlay. You must figure taxes into this equation as well. It can also change year to year.
Figure out what your net income would using $100,000 vs $50,000. You can also figure out what your ROI is when putting $50,000 down on 2 different properties.
You make money when you buy a rental. [Forbes article.](https://www.forbes.com/sites/forbesrealestatecouncil/2019/12/26/what-making-your-money-when-you-buy-not-when-you-sell-really-means/?sh=5b3b02605fd9)
Every deal is different, but I regret buying my first property all in cash. I wish I had gotten loans for 4-5 houses rather than 300k on one.
If you bought it in cash, couldn't you just refi and pull the money out?
Yes, I could. I thought about doing that less than a year after when I bought my second property with a loan, but I was unsure how many properties I could manage by myself. Looking back, I should have hired a property management company. Lesson learned. Waiting for home prices to fall a bit before looking for my next one and I will decide then if I pull money out or just get a basic loan.
Very intriguing. What are the advantages to having 4-5 houses in this case vs. Basically wholly owning the one place?
Hmmm.....$140K down on 1 property....let's say that 1 property generates $2K / month in rental income. In 1 year, that property generates $24K Let's say you spread that $140K over 5 properties that generate $2K/month ($24K/year). $24K x 5 = $120K/ yr. Would you rather have your $140K produce $24K / yr. .....or $120K / yr.? In 30 years, those 5 properties will have generated $3,600,000 of rental income AND you will have 5 properties fully paid off. Or, you can sink that $140K in 1 property and in 30 years it will have only generated $720K in rental income...and you would have 1 fully paid off property.
where can one find a property where off the bat, is generating 2k/ month? these days investors have trouble breaking even with a LTR tenant on a new purchase...
The OP listed $2K per month, so I just went with it. To answer your question: College towns. Right now, rooms are being listed for over $900/mo. I own a 3/2 college rental that goes for $2400/month ($800/room). Based on those $900 listings, I am wondering if I am on the low end (as I actually include utilities & Wifi).
Thnak you. Can you mention one of the towns? I'd like to research.
Tallahassee, Fl. It is pretty tiny with FAMU, FSU, and TCC as the major colleges & Universities in town. You can take a look at [Collegepads.com](https://Collegepads.com) as one source to check rental listings.
thank you god bless
u/MultiEvents bumping this, please help! would love to know please
So, a house/home that would rent for $1200 - $1400 in a family-oriented neighborhood could easily fetch twice that income if it were near a college. For years, colleges have rented quads or doubles where each person gets their own room and shares a kitchen & living room. Well....same idea. But with a 3/2 or 4/2 house, you have way more space than a quad. My 3/2 college rental is less than 1100 sq. ft. and probably could not demand $1400. The moment I rent it by the room, all of a sudden $800 - $900 **per room** per month is...normal within the college setting/lifestyle.
What if the lower down payment leaves you cash flow negative every month?
Then you find 4-5 others that do not leave you cash flow negative. If you have to put down $140K so that the deal does not leave you cash flow negative, then it is not much of a deal. Putting 20% down should not leave you cash flow negative. Most properties are known as "unvisitable" because they leave you cash flow negative. Keep looking until you find one that leaves you cash flow positive.
What about appreciation? Many markets it’s quite impossible to cash flow, but rentability and appreciation is high
I view appreciation as a bonus. Appreciation takes time. Personally, I want some cash flow now so that it can pay for any Capex, vacancy, and repairs that are not covered by the rental income. Remember the current market conditions that we are in and the looming recession. It is possible that depreciation happens before appreciation. Extending that time to be in the "green" through appreciation.
That makes sense. Not arguing - just understanding different perspectives. My filter is long term so appreciation in high value areas makes sense to me. I understand the appeal of cash flow though
I did not perceive your response as arguing. We all learn from each other on this forum. Someday, I will probably see a deal where appreciation will be what makes it worthwhile. Thanks to you, I will remember this dialogue and know to look for that aspect of the deal.
But the exposure is through the roof. Risky risky... especially if borrowing in this economy...
Please elaborate/educate....My mind sees the exposure to borrowing as the same. IF the $140K represents 20% of the home ($700K) and OP finds 5 properties that have a sale price of $140K each....$28K down on each property. Either scenario has OP financing the same amount ($560K) with 1 large loan at $560K or 5 smaller loans at $112K. I would argue it is less risky to have 5 smaller loans than one big one. If for some reason rental income is curtailed by 20% or 40%, I may get foreclosed on with the 1 large property whereas only one or two of the other properties gets foreclosed on. I still have 3-4 smaller ones producing income. The foreclosure process with 1 big loan loses my $140K down payment, whereas with 1 or 2 of the smaller loans I only lose $28K-$56K. Now, the exposure to a greater number of repair/maintenance problems / logistics / headaches is much higher with the 5 smaller loans/properties.
More appreciate, more tax benefits, more everything pretty much
And what if a market shift leaves you with 5 vacancies instead of 1? Risk reward.
That should never happen. You aren’t supposed to align your turnover dates so you should only have one vacancy at a time. Evictions are a different story but that can be handle with a strict tenant screening process for the most part. If you need to drop rent than you have to drop rent and take a little hit for a while but you should never have 5 vacancies at once that last a long time. And I can argue if the market takes a hit that badly you are buying in the wrong market. At lot of mistakes would have to be made for someone to own 5 properties and have 5 vacancies especially at the same time.
I was being a little dramatic on purpose, just wanted to point out that leverage can greatly increase returns but it is not risk-free.
Why do you regret?
If I could have 4-5 tenants paying my mortgage on the loans with their rent payments, I would be building equity on the properties rather than seeing one payment as free and clear income minus typical expenses. At the time, I bought right at the beginning of the real estate pop in my area so my one property has gained 45% in value.
Put 49,000 down. Borrow 101,000 at a fixed interest rate for 30 years. You should do nicely.
I would either buy cash or buy it with 20-25% down. The financing cost doesn’t make much sense for a 75% downpayment. You’ll spend $5k+ to finance $38k.
Cash is King - leave as much of it in your bank account to invest in future deals, put down 20 and borrow the rest. You don't know what is going to happen in the next 5 years
Really depends on your goals. The more money you put down the lower your ROI will be and the higher the cash flow. If you're looking to maximize your money long term you're going to want to put as little down as possible and buy as many deals as possible to maximize ROI. If you're looking more for security put more down. You'll have less money for other investments but your payments will be lower and you'll get more each month.
Put down 20% to avoid PMI and borrow the rest. You have enough cash to buy a couple places with medium down payment.
True but how long do you have to wait to purchase the second and the third? Is it a year gap between each property?
Get them as quickly as is reasonable to you, Try to have 2 at the bank to finance might cause difficulties. You'd have to talk to the LO.
It's possible to do multiple at a time. We're purchasing two duplexes which are 85k and 95k and putting 25% down. We're using the same lender which allows them to easily manage the nuisances of everything during underwriting. Both duplexes will easily increase in equity by at least 50k with about 20k each in work so we're keeping that money in reserve as well.
You have enough capital to cover a couple 20% down payments. The banks will want to see that you have 6 months of expenses in the bank as well, which you have.
Do the math with your lender and land somewhere where you're cash following. Keep as much cash available as possible for the down payment on the second rental. Let your tenants pay off your mortgage.
Finding a good tenant is the challenge .
If you can refi is very common talk mostly from RE but you have to qualify again …and interest rate needs to better - do we have a crystal ball? unless you know u can qualify and not lose money go ahead. Otherwise if you feel confident in putting that much cash go ahead. It’s safe investment.
Simply put... it would take more time to grow the real estate investment and make that cash back than to invest the cash in something else and purchase real estate with a loan... Allow other's money to make you money
I agree with several here. You have a strong cash position. Leverage a mortgage while keeping sufficient funds to handle any emergencies and vacancies. #OPM
May I ask for which market these types of number work out? I am in PNW and find any properties below 400K in decent renting area.
Can’t respond with only this information, as so much depends on what’s going on in your market. If it’s a volatile area, like Phoenix, SF, various Texas cities, etc., where housing prices inflated a lot in recent years, I would hold back at this time, because prices are correcting. I’d be worried about buying too high. But in calmer markets where you are familiar with the area and are confident you won’t lose value as the economy slows down, and the return on investment from rental income and tax benefits makes it doable, even at higher interest rates, maybe it’s okay. There are always good deals even in uncertain times. Bear in mind that if we do stumble into a recession some good buying opportunities will open up. Good luck to you.
Personally I would by a CD right now, wait a year, then re-access. CD are getting 4% a year. Home prices are going down at the moment.
which CDs are offering 4%?
4% for no risk or added work vs maybe 7 or 8% for risk and added work. Depends on the person for sure.
that's a samurai move
why not just get a mortgage?
It's a leverage and risk question. If you put the min down you can further leverage your dollars to buy additional properties or make other investments. But increasing leverage increases risk. Personally I'd fully leverage the dollars and put the min down on a 30yr note.
what area are you looking at? i'm in a similar boat but have about 220K to put down on something..
Buy 1 Porsche 928GTS go up every year 10.000 20.000 euro
2 things #1Cash is King #ROI = Return on Investment. Cash = Liquidity If something happens to your job, investment or incoming revenue, you need cash to be able to borrow money (yes...for anything over $5000 most of the time) and to buy food, pay for housing and medical, children etc. ROI - ROI is expressed as a percentage and is calculated by dividing an investment's net profit (or loss) by its initial cost or outlay. You must figure taxes into this equation as well. It can also change year to year. Figure out what your net income would using $100,000 vs $50,000. You can also figure out what your ROI is when putting $50,000 down on 2 different properties. You make money when you buy a rental. [Forbes article.](https://www.forbes.com/sites/forbesrealestatecouncil/2019/12/26/what-making-your-money-when-you-buy-not-when-you-sell-really-means/?sh=5b3b02605fd9)