Rookie investor seeking advice

[Brian Williams]

I’ve built up an equity position of about 400k spread across 5 different properties in a low appreciation but decent cash flow area. And I’ve also built up about 200k for my next deal. Would it be wiser to sell those 4 properties and go to a bigger market and a higher class of property?

I recently reached out to TheLender and Beeline for DSCR rates and TheLender told me 25% down which would limit me to properties of around 500-600k — Beeline would be willing to go with 20% down. Either way would pretty much limit me to one property without selling an older one.

My goal is to scale to more units but I would really like to be in an area of better appreciation. I like the buy and hold long term strategy? What do you think would be the best path forward in the current environment?

[Brittany Minocchi]

I personally am a fan of cash flow over appreciation. We buy primarily in C class neighborhoods that are cheap to get into, cash flow well and we can fix up pretty easily if/when we need to. With higher end rentals, it'll cost more to buy and more to maintain. Just depends on what your goals are. I've thought about doing the same as you mentioned - selling and buying something in a better area. It doesn't make sense for me for a couple of reasons: I'd be almost doubling my current interest rate, reducing the number of income-producing properties, and reducing cash flow (because there is NO WAY I'd make the same on a higher-end property than what I am right now). All just to have a property in a better area, which is not a good enough reason for me. Now if you can pull the equity, hold the properties and use that equity to buy more properties with a lower entry point/maintenance cost and high cash flow, that's how people scale quickly. 

If you wanted to diversify your portfolio and throw a STR into the mix with the plan of having something paid off you can use personally at some point, that's another path you could take.

As for the down payments - 20%+ is the norm for DSCRs right now. There are a couple lenders that advertise 15%, but saying you can do something and actually closing the loan (assuming you can even hit your coverage ratio) are two different things. If you want to chat more about financing options or you have any questions, I'm always open to chat. Happy 4th!