Higher priced BRRRR or lower priced vacation rental

[Travis Ward-Osborne]

So here’s where I’m at

I’m going in with a partner (he has the money, I have the hustle and the knowledge) and we’re trying to decide between two options:

We're prequalified for a loan on a minimum purchase price of $225k where we could buy a place in a more expensive market and BRRR it, OR we can buy a place near a lake for all cash and rehab it into a dope vacation rental.

What are your thoughts? I know it’s not a lot of info, but just for the basics.

[Julie McCoy]

@Travis Ward-Osborne Leverage is just another term for using financing - it does not have to be in reference to refinancing.  In your particular instance, let's say you (and your partner) have $255k in cash.  You can buy one property free and clear - no mortgage, killer cash flow (partially because there's no mortgage), great!  

OR, you can buy a property with a conventional loan for 20% down - or $51k (I'm not including closing costs, rehab, etc. here for the sake of simplicity).  Now you have a mortgage, but if you've bought right, the income that house is bringing in pays the expense of the mortgage, with a little cash left over each month.  Not as sexy as owning something free and clear, BUT:

With your $255k you can now buy FIVE properties in this manner, each bringing in a little cash flow each month, that might add up to the same cash flow you'd get from the one property free and clear.  But now you're diversified, you've got multiple properties with the opportunity to appreciate, and more flexibility in the long run.  

This is why many investors favor leverage as a means to scale (expand their holdings) vs. using cash, which takes a lot longer to replenish. :)