buy one expensive property or several cheap ones?

I am interested in getting some perspectives on this scenario:
If you had $400k to spend on property and had no other property. Would you:
Buy one $400k property and spend a while paying it off before being able to afford another (however that property would have land and maybe be within 30mins train to city)
Or buy a $250k property and then in a few years by building equity by making extra repayments be able to afford another $250k property. However those two 250k properties would probably be units unless they were rural properties.
Assume your income wont change much.
Lets say your long term goal is to build wealth and income and you will rent as a PPOR.
What would you prefer to do?
 
I think that starting out it can be good to hold multiple, cheaper properties instead of one big property, because there's less chance of all of them being untenanted at the same time than for a single house. It also allows you to spread your holdings around and take advantage of different cycles in different cities. But then again, who knows - if I'd just bought one good house in Perth...
 
you can buy houses in melbourne for 250 not that far from the city with access to public transport. They have been established for a long time in the words of the pet shop boys "Go West" hoopers crossing, werribee, st albans, deer park, albion, sunshine west.

There was an article about this in API a few months ago
 
In Sydney, go west of Blacktown. Older houses 500, 600sqm blocks for <250k.

GB, your problem isn't that there aren't cheap houses out there. Your problem is that you don't really know what you want to do. If you want a PPOR, then you're limited to places you want to live in. If you have to buy $350k+, in a way that limits your choices too. If you believe places closer to the CBD grow faster than outer suburbs, the existence of cheap outer suburbs won't help you because you're not going to buy there.
Alex
 
Hi Gatoblanco,

You'll need to read some books from different authors to get a feel for what strategy will be right for you... search this forum for recommendations. :)

You need to use a property investing strategy that suits your personality.

For example, some people on this forum only deal in commercial properties because they can't stand tenants. ;)

Others have had great success in purchasing lots of cheaper properties 50+km from major CBDs.

My strategy would be to purchase a $400k property in a high historical capital growth area, and somehow find a way to fund the shortfall for a couple of years whilst the capital growth does its thing.

Good luck!
 
I am interested in getting some perspectives on this scenario:
If you had $400k to spend on property and had no other property. Would you:
Buy one $400k property and spend a while paying it off before being able to afford another (however that property would have land and maybe be within 30mins train to city)
Or buy a $250k property and then in a few years by building equity by making extra repayments be able to afford another $250k property. However those two 250k properties would probably be units unless they were rural properties.
Assume your income wont change much.
Lets say your long term goal is to build wealth and income and you will rent as a PPOR.
What would you prefer to do?

I think if you haven't ever bought a property before, the safest way to get the feet wet is to buy well below your means and see how that one goes, then use that experience and what you've learned and go again when your finances dictate.

You won't really learn until you take action, but you don't want to make a very expensive financial mistake.

So, my preference would be to set up the finances to get access to $400k, but only spend $250k as Alex said, and they are still freely available all over Aus. This way, you can go again easily when you are ready, and you have lots of useable equity in case of emergencies.

I would also be doing a lot of debt reduction as well along the way, via an offset account.

The $250k joints can, and do, go up value just as much as the $500k joints. I bought a unit in 2004 for $105k; worth $200k conservatively now. Not mind-boggling wealth increase, but it's a good percentage increase, and there was no extending of the finances to get it; it was pos cashflow from day one. That sort of investing is fun.

Having said all this, I think that after you've acquired a bit of a stable of cheaper, more affordable properties (and this helps spread the risks) then it's time to get serious and look at the bigger projects and bigger returns.

You will know in your own mind when that time comes.
 
I think it depends how confident you are in the area/property that you've chosen to invest in. If you're confident, it's much less work but theoretically just as profitable to manage 1 x $750K property than 3 x $250K properties. But as already highlighted, this options lacks the benefits of diversification, so if you buy one expensive property, you want to be extra sure that it's a reasonable investment and that rental income will be reliable, etc.
 
I am with Alex and LAAussie on this one.

I have seem my friends and others buy properties for 400k-500k and these rent for 320-400 pw. Their cashflow has been shot and the capital increase has not been great.

So ensure if you put all your eggs in one basket to do extreme due diligence.

Personally, I have great success in building a reasonable portfolio which is mostly self sustaining over the last 9 years on what Jan Somers call the 3-4 out of ten properties.

Good luck in your search! :D


I think if you haven't ever bought a property before, the safest way to get the feet wet is to buy well below your means and see how that one goes, then use that experience and what you've learned and go again when your finances dictate.

You won't really learn until you take action, but you don't want to make a very expensive financial mistake.

So, my preference would be to set up the finances to get access to $400k, but only spend $250k as Alex said, and they are still freely available all over Aus. This way, you can go again easily when you are ready, and you have lots of useable equity in case of emergencies.

I would also be doing a lot of debt reduction as well along the way, via an offset account.

The $250k joints can, and do, go up value just as much as the $500k joints. I bought a unit in 2004 for $105k; worth $200k conservatively now. Not mind-boggling wealth increase, but it's a good percentage increase, and there was no extending of the finances to get it; it was pos cashflow from day one. That sort of investing is fun.

Having said all this, I think that after you've acquired a bit of a stable of cheaper, more affordable properties (and this helps spread the risks) then it's time to get serious and look at the bigger projects and bigger returns.

You will know in your own mind when that time comes.
 
I agree, if it's your first one go with something reasonably within your means and see how you like the whole thing - dealing with tenants (or PMs), rising interest rates, the sleep at night factor etc.

Cheers

kaf
 
I think it depends how confident you are in the area/property that you've chosen to invest in. If you're confident, it's much less work but theoretically just as profitable to manage 1 x $750K property than 3 x $250K properties. But as already highlighted, this options lacks the benefits of diversification, so if you buy one expensive property, you want to be extra sure that it's a reasonable investment and that rental income will be reliable, etc.


The problem is for a lot of beginners is they get romanced into bigger, better, more expensive properties with the sex appeal factor. Places like inner-city apartments for the executive class, the high rise unit on the beach for the beautiful people etc.

They think they need to start at this level, which you and I know is not required Trace.

I have only been investing since 2001 (not long, but we've done ok so far), but have bought/sold property since 1985, and there is no way with my (limited) knowledge, experience and (considerable) equity that I would buy one property worth $750k, unless it was a block of flats, or a house on a large, subdividable block in a suburb like Hawthorn, Vic.

But these people are spending that on a 90 sq/m 2 x 1 apartment with maybe a car park. It's insane.

At least they get their 15 mins of fame on ACA 2 years later when they have to sell at a massive loss. :cool:
 
Without going into too much depth, if the gross rent return was the same (eg, 5%) on one $400 or 2 $200k, I would possibly take the one at $400k beause there is only one set of council rates, one lot of potentially irritating tenants, less frequent lease renewals/vacates/reletting fees and less things to go wrong in general. This should translate into lower overall costs and therefore a higher net return. Sure you are not spreading risk, but, often (not always) better quality properties in good locations attract better tenants. And $400k is not a particularly expensive house anyway. Of course there are many other factors which could influence the decision depending on what you want.

Louise
 
At the time I started out I had the same choice, one unit in Sydney or two houses in Brisbane for about the same price. I chose two in Brisbane, the logic I used was, if the unit didn't rent I would get no income at all but the chances of both houses not being rented at the same time was less and if it got too hard I could sell one off and still play the game. Luck would have it the prices and rent sat still in Sydney but not so in Brisbane and I was OK to progress from there.
 
Would other factors also be the likely quality of tenants and the possibility of maintenance? For instance, are there sometimes difficulties with tenants of properties at the very lower end of the market - or this simply a value judgement?

Maybe I'm blinded by the dire quality of properties in my area which are in that very low end of the spectrum. It seems that anything with land content (ie, a house) will cost you much more than a unit, even if the rental return is poor). Yes, yes, I know, I'm sure people are good at finding bargains and exceptions to the rule though.
 
I'm not entirely convinced when people raise the point of spreading the risk in case of vacancy or non payment by tenant.

Yes, if you have 2 properties instead of 1, then you have two rental streams, but you also have twice the debt (assuming same price etc).

So if you have one leased, and one vacant/not paying - you still have 1 mortgage that is having nothing contributed to it. Same net effect as only having 1 IP and that going without rent.

(This of course assume that the properties aren't positively geared and giving you extra for the other loans)
 
I think we're mainly talking about buying a $400k property or 2 x $200k properties. We can't compare a $400k property against 2 x 400k properties.
Alex
 
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