Starting out- Go big or go home?

[Michelle Melchione]

Hi, we're going to be looking into investing in buy and hold SFR. Everythings approximated because I'm in the very first stages, as in deciding if we're really going to do this. But say we decide to bite the bullet. By the end of August we should have everything in order. About $50000 cash, decent credit and 25% DTI. Is it better to put the 20% down on one house (approx $180000), or 10% on two with the hopes of getting LPMI. Say we put 20% on one, leaving a 144000 loan at 4.25%, payment $708, tax and ins $200. Trash and water? 80ish. Rents for $1400, about $400 cash flow. Remember all estimates, numbers could be more or less. Now in theory say we do two at $180000 with 10% down on each, leaving 162000 on each at 4.5 (higher for LPMI). Payments would be 820 plus tax ins and utilities, bring it to $1100 each, rents for $1400. Leaving $300 cash flow each. So is two better than one? It it too much to start? More cash flow rules right? We aren't dependant on cash flow, I'm thinking college tuition or retirement, so setting ourselves up for at least 10 years in the future. Not opposed to selling when opportunity knocks or any other reason.

[Scott Trench]

Hi Michelle, 

I'm thinking that you should meet with a variety of investors and really start educating yourself on the ins and outs of real estate prior to going in on this investment. From a couple of comments in this thread, I question if you are as close to the reality of qualifying for conventional financing and ready to buy as you might think right now. For example, you mention you don't have a paying job right now. Do you have prior landlording experience? If not, you may find that you have trouble financing the properties, even with the sizable chunk of cash you have saved for the downpayment. Will you have a co-signer or income source that will help the lender out? I'd get on the phone with a few to make sure that you stand ready to purchase property right now. 

Regardless of whether you are presently qualified, I would begin absorbing lots of information on real estate investing. Books, the BP Podcast, etc. You need to be able to speak the language and understand the pros and cons of the different strategies, then make a choice about what works best in your personal situation. For example, my strategy of buying properties, managing them myself for several years, and once the cash flow grows to an acceptable level, outsourcing management may not work for you if you don't want to manage yourself. Or, you may want more or fewer units. You may find that you can't make those decisions reliably until you've soaked up many stories from many investors. 

I will punctuate by saying that if I could buy $200K in real estate in Pueblo, I'd be looking for as much cash flow as I could get.