Just in case you weren’t aware. – I am an investor!
I am a small time investor as we only have 7 houses. I am proud to say that I buy ALL houses with the intent to rent them out. Some are rented out sooner than others if we live in them first but the exit strategy for each purchase is to rent them out. As we have discussed in the exit strategy article, everyone should always have an exit strategy if they buy a home. My exit strategy is that my home will be a rental.
I also believe in having multiple baskets. Since I love real estate, as discussed in 6 ways to mitigate the risk, I break that into “baskets” by cities to help mitigate the risk. Our new goal is to maximize the TSP retirement contribution at the maximum $17,500. So this is another basket and since I am not a stock person we prefer to just use TSP.
We are young and trying to rapidly grow a portfolio and are not RICH. There is only so much money go to around. Therefore we have to pick and choose in order to come up with a strategy.
For us it comes down to diversification and loss of opportunity cost. We want our tenants to pay off our mortgages with us being able to continue to invest in new houses. So putting 5% down and having higher monthly payments is okay for us. That difference in monthly payment would have only made a $200 less house. On the other hand that downpayment bought us a whole another house! So success!!
We would rather leverage and have more house with “slightly” higher rates, than less houses.
Years ago when I was in High School or College I was on the plane with a very smart army spouse who was an accountant. She had told me that she was retiring and they were selling their paid off house to buy another house in Colorado. That is actually why they were on the plane, they were coming back from house hunting.
I remember thinking why they didn’t rent out that house and use the income from that house to pay down their new house? Now they had “2” homes for the price of one.
Now I realize this investment style isn’t for everyone. That for many people “debt” is bad. While it is definitely can be more stressful; with the right kind of properties and tight business systems (strong lease, everything in writing, break lease clause, treating this like a business, and leaving emotion out) it can be very lucrative to leverage the house and build other baskets.
What is your strategy? Do you use a large down payment or as small as possible?1