Adding More Properties Isn't Always the Best Move

How do you know which project is going to bring you the best value for your money? Many times, you may think that purchasing another deal will be the best way to use your money. Adding another property seems like it would be the best option to optimize your portfolio. At times this actually isn’t the best use of your money. It is crucial to look within your current portfolio to see how it can be optimized to its full potential before looking out for other properties.

Recently, my dad and I were considering buying a second property for a rental. We are currently working on our property to get it set up as a MTR. This property is technically an up down duplex and we are nearly finished with the upstairs unit. This upstairs unit is a 2 bedroom 1 bathroom that will rent for $1600 as an MTR. The downstairs is not in rentable shape as it does not have a kitchen, needs major work to the bathroom, and also needs work to the layout to make it a 2 bedroom 1 bathroom. This unit, just like the upstairs will bring in $1600.

We were considering purchasing a 2 bedroom 1 bathroom home just down the block that has been on the market for about a month. It is listed at $99,500 and has already seen a $11k decrease in price. We would likely be able to get the property for cheaper than the listing price. It is in pretty solid shape, all it needs is some updates to the kitchen, new appliances, updates in the bathroom, paint, and of course furnishings. It seems like a good deal but when I ran the numbers, it wasn’t great. Right now interest rates are so high and this caused the deal to not pencil out. It cash flowed about $150 a month and only saw a 5.90% COCROI.

Seeing this poor result got me thinking. Interest rates are high so we need to look at this in a different way. Sure I could definitely go into this deal further and work at getting a creative finance deal either with seller financing or going the sub to route. This would likely allow the deal to pencil out, but why go to all of the trouble when my money could be better used elsewhere in a lot easier of a way.

The current deal we own still needs a lot of work for the downstairs unit to get it rented out. This property is paid in full and has no mortgage payment. This means that the cash flow is going to be a lot higher. On top of this, some of the expenses will be cheaper because they can be shared between the two units. We would be paying one set of property taxes, one set of insurance, and one internet bill. Furthermore having 2 units under one roof would be easier to manage and keep track of.

Fixing up this bottom unit is the best use of our money and will definitely be the way we go. I encourage any reading this to look at their own property and see how their units can be maximized. Who knows, there may be hidden potential for more profit.