Risk of obtaining 3rd property

[Ismael Ayala Jr.]

I believe the answer to this question is probably obvious. But I would love multiple feedback, constructive criticism, and differing opinions. I'm all about having strong opinionated people and surrounding yourself with those who are smarter than yourself and who are not afraid to tell you the truth.

I would like to obtain and move into a 3rd property(townhome) in a nice neighborhood. I'm in the position to apply(depending on lender DTI requirement) for conventional financing through the builder at <6% interest rate in this current market. I own 2 homes. I live in one and rent the other for $400 cash flow.

My dilemma is this: I would ideally like to wait until I have emergency cash reserves to cover 6 months of mortgage payments for all 3 properties. Which is approximately $41,000. I have no credit debt and $12,000 of student loan debt I'm looking to pay off within the year. And approximately $130,000 of untouched equity. 

I'm afraid if a recession happens, I may get stuck with 2 unemployed renters and have 2 extra mortgage payments that I can't afford. But I'm also of afraid of missing out on a good opportunity to get a townhome in a expensive popular area at the price point and interest rate I find to be favorable. 

Particulars:
1) 1st SFH rental property cash flows $400 and we have a 2 year lease agreement that ends in 2025.
2) 2nd SFH I currently live in, I would rent out and probably experience a negative cash flow of --$100 cash flow for first year, break even 2nd year, and build little cash flow moving forward. But, could I minimize risk of renter defaulting on payments for the 2nd property by turning this property into a section 8 housing unit with guaranteed income from the gov't? This is DR Horton SFH, and is a newly built single story 4 bed, 2 bath that is surrounded by expensive MI homes. 
3) Move into the townhome. 
4) Use my $130,000 HELOC as an emergency if rent defaults do happen and save for a year until I reach my emergency fund goal of $41,000?
5) Or should I save, wait, prepare for the next opportunity when that $41,000 is saved up? 

I think Dave Ramsey(who I respect but don't worship, lol) would be highly disappointed in me for even thinking about doing this, SMH.

[Kerry Baird]

Immediate thoughts: is your rental on your taxes for 2 years? That will help counting the rents toward your overall income.  What is your attraction to this townhouse? Can you get a discount or add value?  Unless there is a compelling investment reason to buy it, I think I would choose to save up the extra funds.  I might look for a property where I can get a discount or otherwise add value, and have the extra cash.  

I do want to contribute a thought that, when I have enough reserves, three houses will pay for the 4th. When I add rental houses to my portfolio, the extra cash flow offsets a vacancy.  I consider one rental house to be much more risky than several rentals.  Another thought: I can keep going forward buying one owner occupied house each year, turning the last into a rental…