Your goal of quitting your job and traveling sounds wonderful - and the nanny part sounds divine - I think you've found your tribe here ;)Sounds like you've already put yourself in a great position with these first two properties.

then I would maintain the property in your portfolio for sure.

I can give you very high level calculation to understand both scenario...Lets say you buy 100K house with 1000 rent... lets compare all cash against leverage...All cash InvestmentYearly return = 12000 (Rent) + 2000 (Appreciation) - 3000 (Tax + Insurance + Capex) = 11000 = 11%LeverageYearly Return = 1000 (Rent Cash flow) + 2000 (Appreciation) + 3000 (Amortization) = 6000 = 6%Now when you leverage investment at 20%, you can buy 5 house from 100KYearly Return of 5 Houses = 6000 X 5 = 30000 = 30%There are more tax benefit in this deal also as your positive cashflow is lower...If you are planning to buy multiple houses, Leverage is always better...

@Travis Weitthoff - I was wondering the same, the seller is a firm that specializes in developing and stabilizing multi family investments on the South Side of Chicago, so I'm going off the assumption that the numbers they gave me were from last years actuals, but not positive.

Hi @Hans Cooke, California has always taken the position that if you sell and 1031 Exchange California real property for out-of-state real property it will still be tax-deferred but they want their "fair share" if you should sell and cash out (pay the taxes) in the future.  

While legally that position may be able to be argued we run into the issues of how did you get it to the property?

With oil you’ll always have a tank to maintain.

We would like to make him the 1st position lien holder on a property that I am purchasing for cash. 

If you think the deal is good enough, you might be able get a hard money lender to take a second position lien against the subject property if you also let them lien your house or another investment. 

I have a friend that owns a vending machine business and in a lot of cases the businesses don't get a cut of profits, but the businesses want the machine there so it will be there for customers, and the vending company supplies the machine, keeps it stocked, and maintained and keeps all the profits.