New Without A Clue...

[Chek Milliken]

Greetings-

My name is Chek. I'm new to BP and to REI. This site is a bit overwhelming with all the information available, but I'm looking forward to the learning adventure. In the next six months I plan on selling my home in Nashville, TN and moving/investing in multi family in either Chattanooga, TN or Huntsville, AL. Starting off question:...Is it best to purchase a property out right or to put down payments on a couple of properties?

[Jonathan Kretschmer]

Welcome!

This is a common point of debate in the RE investing community, and what’s best for one person may not be best for you

Briefly, buying outright offers security and not having to be in debt, however it means that you can’t use equity elsewhere. It is a slower way to build wealth.

Leveraging a property with debt allows you to control multiple properties (or a much larger single asset) with the same amount of money, and increases the velocity with which you can build long term wealth.

As an example, you can use $100,000 to buy one home. Or, you can take $25k and spread it across three properties, with the extra 25k used for repairs, cash reserves, etc, and borrow $225k.

In the second example, you use your $100k to purchase 3 properties instead of one, allowing you to take advantage of deducting your mortgage interest, as well as depreciating 3 properties instead of one.

But, there’s three times the expenses, three times potential headaches with tenants, etc.

Personally, I have gone back and forth on wanting safety vs accelerating my growth. It’s a personal decision you need to make once you’ve educated yourself and are ready to take the plunge.

A quick note, leveraging requires that you REALLY know the numbers, make good purchases at a discount, and are comfortable with making sure those mortgage payments get paid every month.