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Updated over 4 years ago,

User Stats

15
Posts
1
Votes
Jeff Lever
1
Votes |
15
Posts

Where would you invest? Long/Short Term rental, Airbnb, BRRRR, MF

Jeff Lever
Posted

We have been pre-approved to purchase our 2nd rental/investment property for up to $750k after pulling out close to $175k from our 2 properties during a refi. I'm a stay at home dad with plenty of time, so we're open to multiple options including: 

  1. Short term rentals for vrbo/airbnb (No experience, but have heard it has the best margin)
  2. Long term rentals (We've successfully run a LT rental for the last 5 years)
  3. BRRRR (Never tried, but am fairly handy and not afraid of adding some sweat equity to a property)
  4. MF (Spreaking out our risk across multiple tenants makes this an appealing option)

Would you get 1 property financed worth $750k, 1 property all cash worth $175k, or multiple properties financed up to $750k?
Our main goal is building long term wealth, second is cash flow, and third would be a destination property we could use when not rented out. 

BRRRR: I like this strategy, but there are multiple concerns. First, I'm not sure how long the local real estate market will continue this fast paced rise which has been the main driving factor behind our big increase in Net Worth the last few years. Both our properties have appreciated more than 50% in the last 4 years alone = Yay! Buying at the peak of the RE market = Boo! Second, the shortage of inventory makes finding potential properties very tough (though maybe I'm not looking for the right type of properties). Third, any properties that do come on the market don't meet the 70% rule as far as the ARV goes. With the funds we presently have available, we 'could' do an all cash deal for a property between $100-$150k, and would have $25-75k available for remodeling. The average rental in our area for a house in our area is roughly $750/mo per $100k in property value.

One thing we have considered is a beach vacation rental property. Hurricane Florence did a number on the NC coast a few years ago. There's still an inventory of houses that need to be gutted and rebuilt. Could be an opportunity for us to dive into the short term rental market, and build some instant equity. 

Long Term Rental: A definite option and the strategy we've had a lot of success in, but the area our present rental is in has almost no inventory. Properties are in such high demand, any prospective property is off the market almost as quickly as it comes on the market. 

Thanks to COVID-19, it looks like the smart play here is to maximize leverage and finance as much as possible over multiple properties to reduce our risk across multiple areas. We thought we got some great rates when we originally financed our primary and investment property 5 years ago (3.875%/4.625%), but they're nothing compared to our present refi offers (3.25%/4.125%). I've never seen mortgage rates so low - especially for investment properties. The way I believe our mortgage guy explained it to us is that any rental property has 75% of the rent instantly credited against your liabilities. In other words, if we rent out a house at $1k/month, and our payment is $750/mo, we'd be able to repeatedly do the same thing over and over again as long as we were purchasing properties WITH a tenant in place and good rental history. Say the average deal finds 1 month to finalize and 2-3 months to close. We could pickup a new rental every 3-4 months or 3-4 new rentals/year. 

I know the tendency w/ long term rentals is to cash out of a property, cash out the increased equity from previous rental, and go bigger or more units? In other words, instead of refinancing our 1st rental property from 4.625% to 4.125% while taking out $60k, we'd sell it and take out roughly $100k after selling costs. Assuming the bank says we're good at the 75% LTV if we can come up w/ the down payment - if we combined the sale of our rental w/ the refi of our primary, we'd have access to ~$225k for our next property vs $175k - so we'd be able to get a $900k property instead of a $700k property. To me, that doesn't make a ton of sense (unless we sold the property at the absolute market peak). We can already get out $60k from the rental, keep $40k in equity plus the $500/mo cash flow, and don't have to eat $15-20k in selling costs. If the average holds true of $750/month in rent per $100k in property value, we'd be able to generate maybe an extra $1500/mo on the $700k property vs $900k property. And the present rental currently generates $1400/mo in rent w/ great tenants in place that pay on time every month with few if any problems.


Right now, it looks like regardless the best play is to maximize leverage to buy solid, consistent rental investment properties? But my old man once said all of us are smarter than any one of us, so looking for other opinions. So, what would you guys do if you were me? Thanks for any suggestions or things I hadn't considered. I appreciate it!

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