Invest $50k in one or two properties?

Question

So I am doing my analysis on my first rental property. I am considering a 130k property and putting down $50k. When you run the numbers, the return cash on cash is around 9%. Brandon said in his last webinar that he doesn't want anything less than 12%. So would you say that this isn't a good investment or that I am putting too much cash on one property? Maybe I should split the cash and buy two properties? Then my return % would be higher? Thoughts??

JD Martin · Answer

All things being equal, your greatest rate of cash on cash return is going to be with minimal cash invested in maximum properties. One of the beautiful things about real estate is the power of leverage. Transaction fees as noted above - I assume he's talking about inspections, title work, etc - are non-factors in the grand scheme of things and should have little effect on whether you decide to split your funds into 2, 3, 10, or whatever. The deal is always paramount, and if the costs of obtaining the property would sink the deal it was never a deal in the first place. So without seeing what properties you are talking about, 2 would be better than 1. Caveat 1: if you need to do rehab on these places, be sure you can carry rehab costs.Caveat 2: Be sure you have enough cash available to maintain carrying costs during rehab and the inevitable things that will happen with real estate (vacancies, slow markets, etc).

Jonathan Makovsky · Answer

@Christa P.As far as the returns, I think it's a very good questions, but such a personal one that you need to ask yourself and your partner.(Please see post below addressing the question of the amount of return: https://www.biggerpockets.com/forums/88/topics/269...)What returns are YOU happy with? Personally, I would advise that you do not look to what @Brandon Turner is making, he is a pro and at it for a long time. Those returns may or may not be available in your area and he might have solid operations in place that allow him to achieve those returns, which a newbie might not be able to get. But most importantly are you comfortable making 9%? I would think if the other option is to put it in the bank at 1% and you are okay with the money being tied up in an illiquid asset like real estate, then it sounds like a decent option, PLUS you get the benefits of legit REI experience. My personal opinion is if you can (really) hit 9% on your first rental deal and gain that experience that is awesome and I would definitely go for it!As to whether or not you should invest in two deals, again it's a personal one: Do you have other money in reserves if you need to tap into them shall a major expense come up? Do you have the time to invest in more than one deal? Are you the kind of personality that can handle multiple things at once, or do you need to ease into something?You will likely get all kinds of excellent answers from other investors, but always remember that most REI is so personal and local.Best of luck and please keep us posted on what you do.

Account Closed · Answer

@Brandon Turner definitely has some great insight and strategies towards RE investments, but at the end of the day, what makes sense for YOU? What is your investment strategy?What are your goals with the property? Is it necessary to put $50k down? Can you get the cash flow you need with less of a down payment, leaving you cash for another property that may pop up?The beautiful thing about real estate investing, is its all about what YOU want out of it.

Ali Boone · Answer

Hey Christa! Oooh, I wouldn't necessarily worry about the number specifically. It completely depends on the other factors involved with the property. For example, if a property is a riskier investment (for whatever risk factors), then yes I may not want to consider lower. But if you are looking at a minimally risky property, then accepting a lower number may not be as bad. There are so many variables...there's no way to say a concrete yes or no.Care to share what the purchase price of the property and expected cash flow is? That will be a start to being able to analyze better.

Christa P. · Answer

These cash on cash numbers all look good, in my opinion... So, investing the higher dollar amount, the $50K, is what made them look lower. So, I guess I am feeling better about everything. I am working with a great mentor who will be able to help me assess if the rents that I assumed make sense. I REALLY appreciate all the great insight! I will let you know how it goes. Hope to write offers next week!

Christa P. · Answer

Here are three properties that I am looking at. These assume that I don't put more than 20% down. All are similar in age, size, location, etc. So, choosing between the three is not really pertinent. It is more does this type of investment make sense. All single family homes. Thanks all!!!

Matthew Swisshelm · Answer

@Christa P.,I completely agree with the two points @Jonathan Makovsky mentioned. He did a better job of articulating them than I could have!I also agree with what @Owen D. stated about the +100k price point. I know I've started to see the same thing here in Omaha.In the end it all comes down to what you're looking for.Keep up the great questions Christa!

Christa P. · Answer

ok, next question... Pay closing costs or roll them into the loan... Pluses and minuses of each? When buying a primary home, I am all about not paying interest n them over time. But on an investment, is it better to keep your cash flow?

Jordan M. · Answer

I had a similar question so thank you for posting, @Christa P.. I will be following the conversation!

Antonio Esquivel · Answer

My advice is to put at least 20%. It saves you the mortgage insurance and will help you down the road by having good equity after owning several houses. Banks have a hard time lending more than 4 mortgages to an individual but if you show substantial equity there are banks that will give you a shot.