Cheaper vs expensive properties in a city

[Jay Sheth]

hi,

Is there any logic whether to buy 2 properties for $90k with rental of $700 each vs buying a single property of $170k with rental of $1200. I generally go with 30 year fixed and 20% down. Generally speaking closing cost is high in both. Area/ crime rate etc is similar.

[Anna Laud]

@Jay Sheth

Hi Jay! 

Assuming that you're indeed comparing apples to apples here and things like vacancy, rehab/updating costs. etc are all similar and it seems like the higher ROI would be on the two properties at $90K each.

Another thing to consider would be a simple probability here in 'odds of being paid'- i.e. think of these as properties "A" & "B" THEN solo "C"- if either "A" or "B" stop paying rent, it's with higher probability that the other in the mix would still have income coming in. 

If "C" were to stop paying rent (while in the midst of the eviction process) there isn't another part of this lumped portion of your invested (and borrowed)funds generating income (with the exclusion from other investments obviously, just breaking this question and specific question apart)

This leaves you in a bit of a quandary however as your renter quality at $700/mo and the other at $1200/mo could be different and you could also end up with a worse case situation than outlined (having dual evictions going vs one solid renter) -Giving the full argument for both sides/possible outcomes-

Having said that I assume, based on your description, that the combined tax assessment of both "A" & "B" parcels plus combined structure assessments, are similar or equal to that of singleton "C"- if not you could face a higher property tax payment on two properties vs. one. 

One more thing to think about would be the difference in your insurance costs- it's likely that there would be a similar situation to that of taxes in cost differences. 

Second to final note, (I only add this in as it sounded like maybe it was your first time purchasing two properties at one time) using borrowed funding- DTI (Debt to Income ratio) and credit score may be looked at with a bit more serious eye while applying for two loans at once- that being said, if both are in great standing, it might not be an issue.

All of that being said, it sounds like what you will be more personally comfortable with- again if all things (closing, rehab/deferred maintenance, taxes, and insurance) are indeed similar, and  you would qualify for two loans at once;

A.) slightly higher combined monthly rental yield + possible lesser quality tenants  

B.) slightly less monthly rental yield + possible higher quality renter 

I could be missing something here, but that does seem to be mainly what it would come down to!