1 at 400K or 2 at 200K?

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From: Deborah R


Hi Forum,
Firstly - thank you to everyone who has invested their time in posting so much excellent information. I've been up until all hours reading for the last few nights and this is really great.

I'm very much a newbie and I think I should have been here 10 years ago but now with the big 40 approaching I've decided I need to focus now. Here's our situation.
We own our house - value $850K
Savings, Shares etc about 70K
My income 50K, my husband 60k
Two dependents (6 and 3)

Here's my questions:

1. We're in Sydney and in our local area I have a good idea about rents and purchase price however a unit here is about 400K and I feel like it may be better to buy some properties that are not as expensive (say 2 at 200K, maybe 4 at 100K) rather than put everything into one property ie spread the risk a bit more.

2. I'm not expecting someone to give me all the answers and free information. I think I need to get the experience myself but I would appreciate it if anyone could give me some pointers about where I start to look at other suburbs in Sydney or even other parts of Australia. I did go to a few seminars but the people running them obviously have a vested interest in the properties and I felt uneasy so I didn't go ahead.

3. It seems that a new property with quality fittings, high building cost gives a much higher value on the depreciation so that the cost in income per week to me is much less. Have I missed something here or is new (or newish) the way to go?

Thanks so much in advance for your help,
regards, Deborah
 
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Reply: 1
From: Jeremy Laws


Much better idea for you! 1 at 200k and FOUR at 50k.
 
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Reply: 2
From: Rolf Latham


Hi Deborah

Much depends on what you want your Ips to do for you. It can be successfully argued that in the Sydney Metro a 400 k property will outgrow a 200 k property most times.

On the other hand 2 * 200 will provide a better rental return most times, and as Jeremy has suggested going to even lower priced stock is an option for those that need to get maximum returns NOW.

There appears to be little right or wrong, there are many opinions and at the end of the day only history will tell. One thing is for sure though and that is a mediocre investment of any sort over the long term will outperform a NO investment.

ta

Rolf
 
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Reply: 2.1
From: Gail H


Hi Deborah,

I think what Jeremy's getting at is the multiplier effect: the more properties you control, the higher the gains when property prices rise. Also, if you buy into areas that require you to be negatively geared, then it will limit the number of properties that you can hold (because of your limited ability to service debt).

Also, the problem with negative gearing is that if property prices stall, then you are actually going backwards for a while. The trick when you are buying in areas where most properties are negatively geared is to wait until the property market is in a bit of a slump and prices have not risen in a while (ie. not now). Great gains can be made but timing is more important in the case of negatively geared properties.

My advice is always to get the last edition of Australian Property Investment Magazine and read about the areas they recommend. Buy the last 2 or 3 editions as well (you can get back copies on-line or via the form in the magazine). It is my bible, and the things I read there have heavily influenced my choice of where to buy (plus my own research).

Good luck. You are in a great position to successfully invest. Keep posting and learning.

Gail
 
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Reply: 2.1.1
From: Rolf Latham


Hi Gail

I would not argue about the fact the more stock you hold the more you have to gain when the market rises. I do believe however this has more to do with the $ value of the portfolio held rather than the number of properties held.

On the extreme outside of that, you can by houses in little towns for less than 20 000 and they are very positively geared. Will they grow at the same rate as a inner ring City property ?

Different strategies for different people I say. The investor with 200 k as a wage and tax slave can afford to top up a negatively geared property by getting the tax man to almost cover half of the present loss. Someone on 40 k cant.

Ta

Rolf
 
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Reply: 3
From: Deborah R


Thanks so much everyone for your very useful comments.
Gail, my back issue and the first mag of my subscription to Australian Property Investor arrived yesterday and I was up again until all hours - this is very exciting and I really feel like I'm starting to learn something.
I'm resisting jumping into action but the message seems to be loud and clear that research is the key so I'm trying to be controlled.
Thanks again for your help,
regards, Deborah
 
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