Buying in same location vs diversifying

Lets say you have bought an IP which is giving you a good yield, is positively geared and giving good cashflow.
After 6 months of buying that property you see that an identical property is available at a discount in same location.

Would you invest in the other property?
or would you prefer investing in a diversified location?

 

We bought 2 identical properties within less than a km of each other. When we needed cash we sold one and kept one. Wish we had bought 20. If you know your market really well you can spot a bargain.

 

Double the positives and double the negatives

 

I own 6 in one suburb. All bought well.

I'm still diversified across Australia and overseas but it didn't stop me having a few in 1 area. All comes down to the deal.

 

This! I've bought more than one property when I wasn't even looking for anything......but I came upon a good deal that was too good to miss.

 

If it fits in with your strategy then it makes sense.
Review your short, mid and long term goals and weigh it up.

The last house we bought was next door to another one we already own, and they are the best performers out of all our properties.
Looking to pick up the other next door property in near future and likely to be rezoned to high density in future.

There are many highly successful investors who focus one one area or specialty and do it extremely well, rather than diversifying.

 

I have bought 7 in the one street, All private sales and build on the backyards of 3 of them. This is over the period of 15 years. Some I have intiated the purchase others the owners approached me. It is the street where I live so it is pretty easy to see where the potential purchases are.

 

Wow that's pretty amazing. Did you just keep buying when you saw value in the area?

 

Yes. It is a working class area walkable to central city. It has increased in value over time. Zoning has recently changed so you can build 6 stories. So a bit of luck there.

 

Definitely there are pockets and areas of gold, then there are other places that go up fast then don't move for ten years.

I bought my first 2 houses for $90k in a mining town, sold them both within 3 years for double, allowing me to get out of the regions and into Sydney.

Capital cities will have more reliable solid steady growth. But peoples values change over time and if you're clever guessing what people will want in ten years you can get ahead...(like now everyone wants a stroll on the beach, cup of coffee and not to drive to places - I guessed this 20 years ago.)...

When I lived in Italy I looked around and saw how cool (possible) it was to live in small places, even 30m2 for a family or 15m2 for a single studio. That's now a reality in global cities including Sydney. I hate large but ugly places. And noone wants to do home maintenence.

 

I’d go against the grain here. A core principle of investing overall is diversification and owning a house is already a highly concentrated investment (as opposed to buying shares in a index fund ETF for example) so like for like I’d go for different states even. That way you can also take advantage of the different cycles they naturally fall in.

 

One early retirement strategy is to sell your main residence cgt free and move into one of your IPs, ideally the one with the biggest gains.

keep this in mind when buying property. If you wouldn’t want to live in that area you may not be able to use this strategy

 

I believe if you buy the whole street you can rename it .

 

Not qute there yet I have more to buy. I also have 2 develpment sites in the same street.

 

It takes time and effort to perform proper research.
If a location stacks up numbers wise and owning more than one in that location fits your investment plan then go for it.
Savings in duplication of effort are definitely worth something to everyone. Potential savings via negotiated management fees is also a bonus.

 

Pros:
- You get to know the area really well
- You get to know the agents really well and often get the first dig on many deals.
- You can work out the deals in minutes (dev blocks) knowing what the end product is likely going to sell for.
- You avoid paying market price for problem pockets/ hard to offload pockets
- You work with one set of architects/trades/ builders and this couldn't be more important if you are developing multiple blocks in one area. Same with knowing the councils in and outs and prospects of getting your dev approved/ delayed etc.
- You negotiate well with the property managers and they know they need to work harder for your prop/ get multiple quotes for any issues and generally offer better service with a large portfolio in one area.


Cons:
- If you held large portfolio with high leverage in Mel CBD/ docklands in mar 2020, all of the above Pros would mean bugger all! You would be likely toast! Diversification..
- You get blinkered in your view in casting your net wider to adjoining areas and often miss the wood for the trees.. when analysing deals past your sweet spot!
- If you end up with a lazy PM & the agency, your tenants hate you, your PM hates you and you hate your PM and tenants (been there..)

I hold 80% of my portfolio across 3 areas (1 x metro, 2 x large regionals) and it has worked very well for me however with hindsight (read- covid experience), I wouldn't replicate it to that extent that I have with massive overexposure to a few areas.