Real Estate Q&A with Dave Kimbrough

By Special to the Sentinel

Dear Dave
I have about 150K that I am wanting to invest in a rental property while the market is still considered a “buyers’ market”. I was all set to find my property and my Realtor suggested that instead of buying the property with cash, that I use that money to buy several properties which I would have mortgages on. I really don’t like the idea of taking on mortgages but I want to make the most of my money. What is your advice?—Jarred, North G.J.

Great question! I will start by applauding you, looking to purchase investment properties right now to diversify your investment portfolio is a great idea!

To assess which is the best route for you and your family, you must determine what your long-term goals are and how much risk you are comfortable with. I do not believe there is a right way and a wrong way to purchase investment properties, just different ways. There are two ways to look at the purchase of your properties and that is either to purchase with cash, which is the route that presents the least amount of risk or purchase with a mortgage which will introduce some limited risk.

To make a cash purchase makes great sense, because it creates an instant income source. If you need to quickly generate income, then a cash purchase is the best way to proceed. When you purchase in cash, and therefore have no mortgage, you also remove the risk of market rent fluctuations, because you can easily “go with the flow” and adjust to any potential rent changes. Also, with no mortgage you should be able to go easily — whether a month or two — without a renter. If your risk tolerance is low, cash is your way to go.

On the other hand, if you take your $150,000 and put $75,000 down on two properties then you have doubled the long term investment potential of your $150,000. This should still “cash flow” nicely for you and allow you to have room if there are rental market fluctuations. This will allow you to take advantage of the “buyers market” and also take advantage of historically low interest rates. You will be somewhat leveraged, but if done correctly and thoughtfully — and as always with the help of your accountant — you should be able to create a wonderful long term return with a little, but limited risk. Make sure to plan it out, be deliberate and be ready to act when the right thing comes up!

 

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