70K-149K SFH vs 150K-200K SFH

[Wei Jie Yang]

Hi Guys,

I've pretty much come to place where I am having an incredibly difficult time deciding whether it's a better idea to buy more smaller cheaper rentals or go for higher priced rentals that can rent for more and should be in "better" neighborhoods.

Scenario:

1) A $179,900 unit that rents for 1650-1700. After mortgage and not taking Vacancy/Maintenance will net me ~$400. Down payment of $36K

2) Two $82K  units that rents for $825. After mortgage and not taking Vacancy/Maintenance will net me ~$400. Down payment of ~$33K.

Pro of Cheaper rentals:

1) Scales much faster

2) Lower vacancy risk

3) Lower vacancy carrying cost.

Cons of Cheaper rentals:

1) Lower quality tenant pool.

2) More maintenance risk.

3) Higher maintenance turnover costs

Pro of Higher priced rentals

1) Higher rents

2) Assumption of Higher quality of tenants

3) Higher probability of appreciation

4) Ideally less worry overall

5) Better use of 20% Fannie mortgage for properties 1-4 (6? Not sure how many number is now for 20%)

Cons of Higher priced Rentals:

1) Higher carrying costs for vacancy

2) SLOW to scale.

3) Appreciation in midwest markets might not be any better than working class neighborhoods

Which is the ideal strategy? A portfolio of mid cost rentals? A portfolio of High cost rentals? A portfolio consisting of both? Please share your experiences.

[Edward Liu]

Your gross rent is similar in above scenarios and total cost is not that much different, then I would go for better neighborhood.  

I own combo of A, B, C properties.  The quality of tenants makes a huge difference as high quality tenants at least tried to take care of the rental and follow through on rent agreement.