I'm torn between buying a 3rd unit or just paying down what I have

Category: Strategy

4 replies

Original post

Been sitting on this for a few months now. I've got 2 units, both cash flowing decently, and I've got enough saved for a decent down payment on a 3rd. Part of me wants to just go for it while rates are where they are and keep building, but part of me also thinks maybe I should just throw that money at the mortgage on unit 2 instead since it's got the higher rate of the two.

I know the "textbook" answer is probably leverage and grow while you can, but I've only got 2 units so any vacancy or big repair hits way harder percentage wise than it would if I had 10 doors. Feels like less room for error right now, not more.

Anyone here actually gone through this exact fork, more units vs paying down existing debt, and regret the choice either way? Not looking for the generic "it depends on your goals" answer, more curious what you actually did and how it played out.

Reply by Jennifer Richardson

I went through almost this exact thing 2 years ago. I had the down payment ready for a 3rd unit and my gut said grow, but I ended up paying down the higher rate mortgage instead and don't regret it at all. Unit 2 had a slow month right after that where a tenant paid late and then I had a water heater die a few weeks later, and I was so glad I had breathing room instead of being stretched thin across 3 properties.

That said I know someone in a local group who did the opposite, bought unit 3 right away, and it worked out fine for them too, mostly because they had a solid emergency fund separate from the down payment money. So I think it comes down less to units vs debt and more to whether you've got a real cushion either way. If buying the 3rd would leave you with basically nothing in reserve, I'd pay down the debt first. If you'd still have a decent cushion after buying, growth probably makes more sense while rates make sense to you. It really depends on whether your reserve fund would survive a vacancy on either scenario, that's kind of the real question underneath this one.

Reply by Jaxon Patterson

I did almost the same thing as Jennifer here^ and I don't regret it, either. I tend to play it a bit safe in general, though

Reply by Marc St.James

@[cmrxlqsct0005z50jxjdaja42](Elizabeth Morgan) I haven't been in that exact spot, but I'd probably lean toward having a solid cushion before buying another place. Things always seem to break at the worst possible time, and having some breathing room helps me sleep a lot better.

Nothing wrong with growing but I'd rather do it when I know I can handle a surprise repair or vacancy without stressing about it.

Reply by Christina Calderon

I'm going to go against the grain here and say that things will probably work out with the third unit. You've already proven that you can get two properties to cash flow in an already tight market. In all likelihood, you can do it again. I'd just be sure to practice good preventative maintenance, tenant screening, etc. to mitigate risk in other areas.