What would you do?

[Kain Kim]

Hi all, 

My primary residence home is worth ~$1.3M, and I almost have no mortgage (very small amount with 3% APR). I'm thankful for this.

I'm looking to buy my first rental property (probably via BRRRR strategy) sometime this year if I could. But I thought I should first know what I'm doing. So I got my real estate license and have been studying myself to gain some experience and knowleage in real estate before I make a move. Fortunately I do have quite a bit of equity in my primary residence, but unfortunately I don't have much cash.

The questions I have are,

1. For my first rental property, I would most likely need to cash out of my current mortgage OR get a HELOC loan. Which one would you recommend? Again, I'm looking to do BRRRR.

2. Should I start big or small? If I have access to my equity up to $1M, how would you invest that? ~$200K-400K (or even less) on a property and ~$50K-100K on rehab? or buy multiplex home? I think I should start small, tbh as I don't have much experience..

3. If I want to buy a property that's worth ~$200-300K, I would probably have to go to an area that's not preferable (low income, high crime rate, etc.). Or should I go find one in a suburban area like a couple of hours away from the city? I'm even thinking about an area near casino

I'm still in the early stage of my real estate journey. Any advice would be highly appreciated. Thank you!!

[Anthony Dooley]

This is what your question sounds like to me. I want to start playing poker, but I don't have any cash. Should I borrow against my home to play my first game of poker? If I do this, should I bet all of my money on the first hand, or make smaller bets until I learn the game better? 

My advice is to take small risks in the beginning. You have an expensive home, so I assume you have a pretty good income. I suggest that you set aside some cash for the sole purpose of buying a rental property. While you are saving, learn more about your market. The "low income high crime" areas will give you a bigger ROI. The nice suburban areas are lower risk and also lower ROI. You will need to find the area where risk and reward are acceptable for you. Tip: if it's listed with a Realtor, it is over priced as an investment. Find a house in distress where the seller needs to sell. When you buy it at a lower price, they will be thankful that you rescued them. If you are going to make a mistake, and we all do, don't put your home at risk or borrow at 8% for that mistake.