Buy 1 outright or finance 2 or 3?

[Ian C.]

Hello everyone - newbie here with one property in ownership, a so-far/so-good performing double. Cash flowing at ~$200/month/unit.

Have $30K in cash and want to make the next deal or set of deals. We all have goals and my goal is acceleration to 40 units in 5 years, each unit producing roughly the numbers above. In my market, doubles can be had for $50K and will produce after everything but income taxes (PITI, PM, vacancy, etc etc) ~$200/unit/month. For this next move - I am looking at a decent 33K property that will get $1000/month in rents as a potential outright cash purchase - or - using the $30K as down payments to purchase 2 or 3, 30-50K properties using conventional financing (provided my DTI ratios are within margins at that point to get mortgages 2 through ??)

Thoughts/comments/advice? Thanks!

[Aaron Mazzrillo]

Real estate is the place to grow your money up. Paying all cash for a property and holding it free & clear is a waste of time. You might as well put your money in a high yield savings account down at the bank.

Always use leverage to buy. Let the tenants pay down the mortgage and let appreciation/inflation increase the equity. At some point in the future, harvest that equity and either 1031 into a larger asset or invest in a higher yield producing business. In your case, buy a lot of apartments, then sell off the losers and pay down/off the 40 you want to keep.

My buddy told me the other day that if an investor cashed out his equity on the 30 homes he is currently holding, and assumed all the debt, that buyer would get a 2% return.

I started with notes and condos. Got into houses. Then small apartment bldgs. Now I own commercial. That would have never happened if I paid for my first house all cash and held it free & clear.