Over Leveraged Purchasing New Property?

Question

Hi all!  I'm new to the forum and still learning in the investor side.

I wanted to ask a question on buying properties.  Mostly, I think I know the answer, but I'm having a hard time convincing my wife.  I just sold my first rental property.  I own another and I'm poised to renovate and turn it into a long-term rental investment.  The sale of the first property has been through a 3rd part intermediary via a 1031 exchange and I've got about 41 days left to identify new properties.  I've identified one property that we will likely officially "identify" in the 1031.  There's enough from the proceeds in the 1031 to purchase 2 properties, but my wife is concerned that we're over-leveraging ourselves.

So, I have 2 options.

1 - purchase 1 additional rental property with all the proceeds from the 1031.

2 - purchase 2 additional rental properties and split the proceeds from the 1031.

I understand you may need more details, and depending on your questions, I'll be glad to answer.  So, fire away!  Recommendations?  Need more detail?  Option 1?  Option 2?

Thanks in advance!

Scott S. · Answer

Mason, thanks - the answer is yes.  We are both currently employed and our combined income is enough to float the rentals for multiple months.

I know there could be big expenses, but I've got that in my CAPX budget as well.  So, that will come right off the top of any rental income.  Until CAPX gets built up sufficient to cover, we can/will cover it ourselves.  Problem is, she doesn't want to work it like that and wants rentals to cover themselves on day 1.  Not sure which is more unrealistic...

Andreis Bergeron · Answer

@Scott S. I think there are always a lot of moving parts to a 1031 and getting the properties "identify" in that short time period.  If you are going to buy 2 properties are you comfortable with the maintenance and upkeep and potential problems or will that cause you to be over-leveraged if something happened?  You don't have to answer these questions for me, but just lots to think about.

Mason Hickman · Answer

@Scott S.

I would look at it more as a function of your reserves. Do your liquid cash savings allow you to comfortably have multiple months of savings for vacancies, big expenses, etc for both properties? If so, giddy-up!