Buy lower priced property now or save for higher priced property?

[Shalen Takaaze]

Looking for advice as I'm starting my long-distance real estate journey. Since I am investing out-of-state, house-hacking and putting down the 3% downpayment is out of the question. My first option is to go for a lower priced investment property (approximately $100k) that needs minor cosmetic repairs while the other option is to raise private capital and save for a higher priced property ($300-400k) that I can also do cosmetic repairs to increase ARV. I am torn since the lower priced property would at least get my foot in the door and begin to build momentum while the higher priced property would be more desirable in location, condition, tenants, etc. I am more open to hard money lending at a lower price point and refinancing within 3-6 months, but at the $300-400k, I would rather go with a conventional loan and refinance at the 12 month mark. Any and all thoughts on this would be appreciated!

[Michael Garofalo]

Hi Shalen,

The bigger question to ask is what class of property can you get at those various price points (A, B, or C) and which class do you actually want to be in? I own assets across that entire spectrum (A class I manage myself locally, B and C I have property mangers for locally and out of state) and I can tell you from experience that managing C class is a fair amount of work. The cash flow is better, but there is always some problem or tenant issue to address. If you have the stomach and want to be in this class that's totally fine, just set your expectations accordingly. 

I would advise against raising money from others for your first deal. I think the responsible thing is to get into something on your own merit, learn the business, make your mistakes an grow as an investor, and once you have more of a track record, then look to borrow or raise money from private sources.