Better to have one $600k property at 70% LTV, or four $300k properties at 95% LTV?

Question

I'm working on part of an investment strategy and I'm curious about having one more valuable property that, either through a large down payment or BRRR method comes in at 70 LTV, versus using creative financing to have multiple less valuable properties at high LTV.

So, assuming all properties would be at just above break even, is it better to have one $600k property at 70% LTV, or four $300k properties at 95% LTV? 15 - 20 year hold time.

The rental investment calculators show that the four $300k properties would have a lot more equity in the future and many times the cash flow after a few years, but does the extra maintenance, management time and expense, etc. outweigh the numbers?

Is having more properties always better than one nicer property?

Can of worms opened!

Greg Scott · Answer

This is an unrealistic scenario because you cannot easily find someone to give you 95% financing on four properties.

I'm going to change the parameters of the question and assume all properties have 70% financing.  What is better?

- One property valued at $600K?

- Two properties valued at $300K each?

- Four properties valued at $150K each?

Here are my answers:

- It is unlikely the $600K property will provide cashflow.  In my opinion, that is a riskier bet because you have to have a big pile of cash for contingencies.  If you added in the cash you should have to protect against contingencies, the actual return goes down (or the risk sykrockets, your choice)

- If the $300K properties cashflow, definitely a better bet.  From a $ perspective you get the same amount of appreciation, depreciation, loan pay down, but here you have cashflow and if if a tenant moves out, you are only 50% vacant instead of 100% vacant.

- Generally the same logic applies as above.  If these cashflow, it is better to have 4 properties than 2.  On the other hand, if these are in terrible areas, you introduce a different kind of risk.  Assuming these are in decent areas, this is the best solution.

Greg M. · Answer

There is so much wrong with what you wrote. You need to start fresh with your thinking. Work the numbers out on an amortization spreadsheet.

Your current numbers make no sense (600K property at 70% is 180K down and 420K financed, but four 300K properties at 95% is 60K down and 1.14M financed).

The odds of finding someone to loan 95% on four investment properties is extremely slim. While not impossible, you'll be paying a much higher interest rate for the loan than with 20%+ down and also you're likely paying some points or splitting the profit if for resale.

Your equity statement doesn't make sense. The only reason you'll have more equity in the future with the four 300K properties is because you bought 1.2M in properties vs 600K. If interest rates are the same and loan amounts are the same, you will build equity in both proposals at the same rate. The only thing that would change this is appreciation.

As for the best choice, with 100% certainty that would be unknown. Maybe the 300K properties cash flow much higher, but the 600K property appreciates much faster? A roof on the 600K property will cost more than on the 300K property, but you have more roofs to repair on the multiple 300K properties. Maybe the 600K property area goes from an A to B class area, while the 300K goes from C to B class?

Nathan Gesner · Answer

Read a few books on real estate investing to learn the power of leverage. I like the Unofficial Guide to Real Estate Investing. Here's a fundamental explanation to get your juices flowing:

Assume a house costs $200,000 and rents for $1,500. The market appreciates 3% per year.

Pay cash for one house and rent it for $1,500. After five years, you'll have earned $90,000 in rent income and gained $34,000 in appreciation.

Buy four houses with $50,000 down on each. The mortgage payment is $1,000 on each house, so you earn $500 per house or $2,000 monthly. After five years, you'll earn $120,000 in rent income and $136,000 in appreciation. You've earned $132,000 more by splitting your money and leveraging it.

Eric Miller · Answer

Correct, I need to apologize for keeping my example too simple when most people on here are much more sophisticated in investing than I am.

Chris Seveney · Answer

I would take one over property over 4 all day long. Now I agree the 4 will cash flow better than one will but I also look at it from risk of 4 properties will have higher maintenance costs and lower priced properties tend not to appreciate as well as a higher value asset

I am also in it for long game and managing one is easier than 4

Ashish Acharya · Answer

@Eric Miller Choosing between one $600k property at 70% LTV and four $300k properties at 95% LTV depends on your goals, risk tolerance, and management capacity. A single property is simpler to manage, carries lower financial risk, and offers streamlined tax reporting but may generate taxable income sooner. Four properties provide diversification, greater potential for appreciation, higher aggregate depreciation deductions, and increased cash flow over time but involve more management complexity and higher leverage risk.  With 4 properties in different location, you have 4 time more chance of RE appreciation.

To maximize returns, leverage tax benefits like depreciation, mortgage interest deductions, or cost segregation while considering your ability to handle management demands and market fluctuations. Diversification and long-term goals should guide your decision.This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Eric Miller · Answer

Thank you, that's helpful.

Eric Miller · Answer

My BRRR is in a pretty great location. There are occasional properties in the rural areas around here that I can get 95% LTV on, those areas don't appreciate as quickly but do have decent rental rates. Not sure if it's worth it to gain the extra appreciation while also having to manage multiple properties that are a bit of a drive away and have unknown maintenance requirements. As long my refi goes through ok I think I'd like to hold onto the BRRR and be more careful about what I get into next.

Nicholas L. · Answer

@Eric Miller

I was going to say something similar to what @Greg Scott said, that generally you wouldn't have this as a choice.  but you did say that it "reflects your situation."  are you able to share more about that?

i am just going a deal at a time.  i actually have bought properties on seller finance at 95% LTV.  i've also BRRRR'd.  i'd do either.  to go back to my first point, though, i generally can't pick - it can take months and months to find a deal.  i then evaluate it and i buy it or i don't.  lately i keep getting outbid on potential BRRRRs.  I'll make an offer that works for me and then someone else will bid slightly more or way more.  i move on to the next one.

what were you looking to get out of asking this question?

Better to have one $600k property at 70% LTV, or four $300k properties at 95% LTV?

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