New investor. Trying to figure out where to go from here...

[Kevin C.]

Hi there from Arkansas! I have posted a couple of threads here regarding our situation, but I'm going to do it again in the hopes of getting some new opinions.

We currently own 2 properties. 

Property A we purchased in 2010 for 100,000. We currently owe about $87k @4.75%. Our PITI is $788 because of an escrow shortage and it is rented for $900/month with good tenants who have been here for 2 years. It is an older house with mostly older equipment / needs some work. The problem is that it doesn't really cash flow enough to put any money into it. It will needs a new HVAC in the next 3 years I estimate and will need new ductwork at the same time. The fascia boards need replaced and gutters need installed. It has some wood rot issues in the crawl space as well, though the rot has been pretty much stopped through fixing the leaks causing the rot. We have rented it out twice and both times it rented within a week, so no problem renting it again. The home is probably worth between 100 and 105k. Not much money to be made if we sell it.

Property B we purchased in 2015 for $75,000. We currently owe about [email protected]%. The PITI is $420 and it is rented for $950. This house is in the city where we currently live with a BOOMING real estate market. Of course, because it's booming, there aren't many deals to be found and the ones that do come up are snatched before we can think of getting to them. Conservative estimates put this home's value at $100,000 very easily. A local real estate agent estimated $140-$150 based on similar sales but that seems crazy to me. Anyway, everything in this house is new. New roof, hvac, carpet, paint, tile, appliances, etc..It still needs some cosmetic work to the exterior but with its monthly revenue, we could afford to put money into it pretty easily if we needed to after this current tenant vacates. This one did not rent that easily 8 months ago, but since then things have really taken off around here and rentals in this school district are few and far between. I think we could easily have this house rented in 5 days for $1250 when (if) the current tenant vacates / renews lease.

We currently rent our primary residence for $1,100/month.

So, that is our financial situation. My question is, where do we go from here? As I said, deals in our current area are difficult to come by. The profits are larger, but we are definitely in a bubble and would be paying a premium to purchase here right now. It makes me nervous because I know the property values are inflated right now and I fear a huge decrease in value in the next 5 years. I've been thinking about it, and I'm tossing around the idea of investing in property A's city, which is about 2 hours from here. We still know people in that city who check on our house for us, and it's close enough that we can easily drive by once a month / can do maintenance ourselves. This city has one of the largest colleges in the state (2nd or 3rd) but has very low property values for the most part. I can easily find a 3/2 in a lower-middle income neighborhood for $50k and rent it for $700 or more. Obviously nobody is getting rich at those prices, but it is good stable income and the property values aren't going to get much lower. This is a city where lots of the college graduates stick around because it's a good place to raise a family and it's close enough to Little Rock that many of them commute from this small town to the city to work every day. 

The alternative is to invest here in NWA, which will require much more aggressive searching and much higher down payments because the properties are much more expensive. We will not be able to acquire them as quickly here as we would in property A's city and the margins would still be slim if we're using MLS deals.

We don't have anything for a down payment right now, but will by January. We do have considerable equity in property B though, which we could use to our advantage to purchase new properties if we need to. 

So that's our situation and my questions. I know it got long, sorry :) What do we do with our two properties? Where do we invest? Do we just stick our money into IRAs and 401ks? Help!

Thanks in advance :)