All Forum Posts by: Jim D.

In the scenario you described, you would be making much more money on the 10 properties. While the monthly cashflow is equal, with the 10 mortgaged properties you are also paying down principle on the loans every month. Secondly, assuming these properties are all equal in value, your appreciation over time is much higher the more properties you own. Assume each one is worth $100,000 and they appreciate 30% over 10 years. In the first scenario, you make $300,000. In the second, you make $120,000.

For anyone in the growth mode trying to maximize their total earnings, the critical question is this: by taking on $80,000 debt at 5% interest, can I invest that money elsewhere and earn more than 5% return? If so, you get to keep everything over 5%, so it makes sense to do it.

Smart investors do this when they are in growth mode. If they don't care so much about big growth anymore and just want to enjoy cashflow, that's often when people will pay down the debt and just let the cash ride in. Their total net worth won't grow as fast anymore, but they'll get to enjoy the cash, which for the majority of people is why they did it all in the first place.

Hope that helps.

Good pick... walking distance from my house. I'll be there on Wednesday!

The best way to know is to check your local rental listings and get a feel for what each goes for.

Your area may vary, but typically a home of the same size would go for a couple hundred dollars more per month, because people like living in their own home rather than live right next to the smell of 420, loud parties, and drive-by moonings (no personal experience here).

If you are going to use this money from the sale of 50% of this property to buy a similar property with similar ratios, then I'm not sure I see the point of selling it.

The only way it would help you is if you sell it to him at market rate ($60k), and use the proceeds to buy something under market value. If you sell it to him at your discounted rate, and buy something else at a discounted rate, it's a wash for you.

As they say, "Do the math, and the math will tell you what to do." Just run the numbers side by side, as it sounds like you've done, AND account for costs like higher vacancy, repairs, etc. After accounting for all the true costs, pick which ones gives you the better return.

Greg has some very good points, though I think those strategies would start to apply more after you have a few deals under your belt. If you're just looking to learn the ropes with your first couple properties, I'd probably just look at what gives you the best total return.

If your goal is just to get the largest return possible and build the most total wealth, then your focus just needs to be on making sure your equity is being placed where it will give you the highest total return. That may or may not be accomplished by doing a 5+ unit. Don't look at the number of units--look at the ROI on your money invested. If in your area you can make a higher ROI on 4-plexes than 10 units, then there wouldn't be much reason for you to even go there (and vice versa).

With the little information given, it sounds like he's guiding you through a very efficient strategy for someone starting out without a ton of capital. It sounds like you're doing 3.5 or 5% down owner-occupied loans, which for folks with limited capital is a fantastic strategy. To do a 5+ unit deal, you'll need a minimum of 20-25% down, so you won't be able to do that until you've built up some more equity or funds. If you have 20% down and reserves available to do a 5+ unit now, then go for it. But my guess is that will be the major hurdle and he's probably getting you to that point as quickly as possible.

I've never worked with that specific bank, but she is correct that the 10 loan limit is a rule only for Fannie/Freddie loans.

If the lender is just holding the loans on their own, that limit does not apply.

All joking aside, need to know what you're trying to accomplish in order to assess your strategy.

In the immortal words of Ryan Gosling: https://www.youtube.com/watch?v=ZmivKyEY1Dk

 Yea, so you'd technically be somewhere in between. The 1% rule is just a quick rule to help you see how well something would cash flow against your loan if you put 20% down. So for that purpose only, the ratio would actually be $550/$46,250. But that's getting into the weeds a bit.

It may be difficult to find cash flow in your area--sounds like you'll either need to:

1. Find a way to get a low purchase price on something
2. Look at another area
3. Settle for cash-flow neutral and be happy with the principle paydown and possible appreciation. Though it sounds like what you're really after is cashflow to live off.