Big Decision. Need Your Opinion.

[Chris S.]

I could really use an experienced real estate investors opinion here. I'm not a complete newbie. I have 1 rental property right now from 2007 that barely breaks even (obviously not the best time to buy.. ha). I feel like, if I could get advice from my 5 year older self after knowing much more about real estate, I'd know what to do here. I'd really appreciate any help.

I'm kind of torn on what to do. I have a full time job, my wife is a stay at home mom and getting her MBA (4.0 right now;). She's willing to focus on real estate and do all the leg work, while I bring in money from my current job to fund it.

We plan on getting a new house in the next year or 2. It would be around the 450k to 650k price range (coming from a $1600/month home). I have very good credit and I easily make the income to support that. I feel like houses are about to start really appreciating.

My question is, should I buy a home w/ 5% down, get a larger amount of real estate for my money and hope for appreciation which would hurt my monthly cash flow a little, monthly maintenance would cost more, it would cost prob $15k-30k cash to furnish it. It would probably set us back 6 to 9 months on putting $30k down on a rental property and we'd also lose the investing experience.. starting 6 to 9 months later.

Or.. should I just use the money at 20% down to acquire our first buy and hold since 2007? This would increase cash flow and we'd get experience, but I may not capitalize on the appreciation that's set to come in the next few years.

I'm having a hard time finding deals where I can buy the home at 70 or even 80% ARV - rehab costs, so it would be the full 20% investment to acquire a cash flowing property. Maybe the answer lies here..

Anyway, I've been going back and forth on this for a few days. Hopefully someone can help me out here. It would definitely be appreciated. Thanks!

[Jon Holdman]

There's real estate investing, where you invest your money expecting to produce a return. Down payments for bank loans for investment properties are going to start at 20%. Maybe 15%, but that incurs PMI.

Then, there's buying a house to live in for your own enjoyment. That's not an investment, no matter what NAR commercials say. That's a liability. Its just an expensive doo-dad like a car or boat. If you get lucky, there may be appreciation over time. If you get unlucky, like many people who bought 10 years ago, you get stuck with an underwater albatross. A few folks have been very lucky and bought in the right place at the right time and saw a bunch of appreciation and made a lot of money.

But in general you should treat a residence like a big, expensive toy.  Buy the cheapest one that fits your needs.  If your question comes down should we buy an expensive residence that will hurt our ability to save or buy a cheap one and then save and invest as much as we can, I would advise you to buy the cheapest one that fits your needs and focus on saving and investing.