New investor, please help

[Dominick Marschall]

I've inherited a duplex worth approximately 195k, I owe 89k on it. I have rehabbed the duplex a couple of months ago and both units are now rented. Total rent is $1850/month. Cash flow of about $820/month. Older home built in 1890. 

I do not have a home of myself (I rent) and would like to buy a home (thinking of another duplex , living in one side). I will be able to save approximately 85k by November 2020. This would allow me to put 20% down and leave me with a decent emergency fund. 

Question: Should I use that 85k that I can save to purchase another duplex, which I would live in or should I use that money to completely pay off the rental duplex I inherited? 

Thanks!

[Derek Diamond]

@Dominick Marschall

Hey Dominick and welcome to the BP community. To me, you sound like you are set up to do very well in real estate investing. The fact that you can save that much money in such a short time shows me that you will do just fine with either option. I will just list a few pros and cons of each that I can see.

Paying it off: Pro- it is hard to have a property foreclosed on when it is paid off. You get to keep all the money and potentially roll it into the next property and after you rinse and repeat this process for a few properties you will have enough cashflow to buy units with just that income and almost no risk.

Con- you will not be using the most powerful real estate asset which is leverage. Using other peoples money (the bank in this case) can radically increase your return on investment. You will have to continue to rent and maybe you want a place of your own.

Get another duplex Pro- You are using the power of leverage. You are getting three units to pay for your place to leave and maybe you get to live mortgage free so to speak. You manage more tenants and learn that side of the business.

Con- You carry more leverage and if the markets change and you can be in a tough spot if you are over leveraged(I know you said you would have an emergency fund so that is good).

I am sure there are many more but you get the idea. Good luck and keep it up either way!