IP: buy one expensive one or a few cheaper ones?
- Thread starter gwaipor
- Start date
That depends on your overall strategy. You can do both, we are doing well with lower priced properties in regional areas. Less risk if you do not have a tenant to pay the mortgage and sometimes quicker to sell as more first home buyers will look at this price bracket.
If you buy one more expensive IP and it is vacant for any reason you've lost 100% of your income - can you continue to finance the outgoings during the void? If you've got two or three the chances of having no income drop dramatically. In any case it is prudent to have a cash buffer that will cover you should the unexpected happen - you don't want to find yourself as a forced seller. T.
there are benefits for both. Sometimes the higher priced ones could be better for capitol growth although it depends on lots of other things too. If you purchase two properties then it means more paper work, costs will probably a bit higher overall (2x insurance, 2x strata for units, 2 x rates, 2 x water etc).
We have only just started - so not sure how it is going to go for us yet - but we are getting a few cheaper properties for the affordability and vacancy reasons that others mentioned. We don't feel comfortable putting all our eggs in one basket, plus I like 'collecting' things.
Hehe at the Y-man
Hehe at the Y-man
If you can afford it, I would prefer a 'bigger one'. Cheap properties attract cheap tenants at the lower end of the socio-economic scale, in the cheap areas of town. These places have higher crime rates, which leads to higher risk of property damage and also increased insurance premiums. Fundamentals of property investing is always location, location, location - so never go down the 'cheap' route for a plain-vanilla investment in my opinion.
I think it depends on your borrowing capacity and your ability to cover shortfalls in the rent to mortgage repayments. We started off buying a bunch of cheapies both for servicing reasons and to spread the risk. It worked out fine for me, giving me the confidence to borrow larger amounts and to have negative geared capital growth properties. We r in the process of selling one of those cheapies as it hasn't worked for u's but the rest r going well. Don't limit yourself to one or two more expensive "better" properties cos u have hit your servicing and affordability limit as two IPs won't make much of a difference to your life until at least a few property cycles.
Glad you added the "in my opinion".
Many agree with your reasoning just as many do not.
I only have one more expensive IP ($450K) The rest are in low socio economic areas. I have had no problems with any of my properties (lucky?).
Because I buy lower end properties and do a quick reno my portfolio will be CF neutral with one interest drop. Yields are higher (generally) on lower end properties. My one above is the negative one. Others are positive. I will get rid of it soon allowing me to work only part time.
Everyone is different and everyone has reasons for doing it their way. But as others have said. Depends on your personal situation and what your end goal is. If I had bought a few more of the first property though I would probably only hold 3 properties max now as the negative cash flow would have been prohibitive.
Similar situation was discussed a while back on here:
http://www.somersoft.com/forums/showthread.php?p=707122
http://www.somersoft.com/forums/showthread.php?p=707122
