How to best allocate savings

[S Penn]

Hi all,

First of all - big thank you to the BP community. The knowledge I've gained so far just by lurking has been invaluable. Apologies for the lengthy post below, but wanted to include as many pertinent details as possible. 

I was hoping to get some advice on how best to utilize my savings. I live in California, and have around $500K that I was going to use for a downpayment on an owner-occupied property (2-4 units) allowing the rental income from that property to pay for my mortgage/home expenses. For context, cap rates in my area are around 3-4% for multifamily, and I would live in this property for 2-5 years. 

In doing my research, my eyes have really been opened to the possibilities of real estate investing, and I'm wondering if my cash would be better served buying a commercial real estate property out-of-state. This is back-of-the-envelope math, but even with a conservative 75% LTV @ 8%, I could purchase a property up to $2M. If I assume a 10% cap rate, that puts me at $200,000 NOI per year. I used a simple loan calculator, and my debt service would be 11K/month on income of ~16.5K/month (+5.5K cash flow/month), which dwarfs the cash-flow freed up by purchasing an owner/occupied in California and saving on rent.

I know there's a LOT that I'm not thinking of here, so wanted to ask the group what considerations I'm missing (loan terms / tax implications are top of mind). I'm relatively young and at a point in my life where I can be fairly aggressive with my investment decisions. With that in mind, it seems like I'd be better served paying down the debt on a property with a higher cash flow yield (with the goal of using it to finance my next investment as quickly as possible).

If it matters, I'm in otherwise good financial health (job/credit/etc), and while I would be using a significant amount of my savings, I would have enough to cover a handful of unforeseen expenses. I'd particularly appreciate input from anyone who's been in a similar boat.

Thank you!