More cheap properties or less expensive

Keen to get people's thoughts on whether it is better to have more cheaper properties or less expensive properties. i.e. if you can borrow enough to have $2m worth or property do you buy 5 x $400k, 4 x $500k or 2 x $1m?

Obviously there is other things at play, yield, location, potential for capital gain, but assuming they are all equal, which way do you invest your $2m?

 

I'd choose 4x $500k or the 5x $400k for diversity. and also the location must be in different places / street at least for diversity.

 

It really depends on your strategy. This sort of question should be easy to answer once you've locked down a preferred strategy.

 

In normal market conditions, median or slightly sub-median is the safest play.

 

It would not worry either way, what I would buy is totally dependent on market conditions at the time, if its rising it wont matter either way.

If you are buying in a flat market then I would do as Ace mentioned safer to buy closer to median house/unit price.

Another way to mitigate risk is buy unique, in other words you have 2 properties one at $400K and the other at $500K, however the $500K is a development site, ie you can build an additional property are rear, makes it unique, in demand and you can add value and therefore you are buying the land at a cheaper rate. Hope that makes some sense.

MTR

 

If you have multiple properties, you can spread the risk eg. if 1 is vacant, it will have less of an impact than having one high value property that is vacant.

 

as others have mentioned, if will depend on your strategy. As for me personally, i would rather buy 5 X 400k as my ultimate exit strategy, if all else fails, will be to sell. I personally think its easier to sell a property closer to median that one that is worth 1m or more. just my two cents.

 

+1

however, if you can pick up a good blue chip property, with view of adding value by renovating,subdivision, plans and permit, it can deliver some serious $$$$$


not long ago, investor picked up HC stock at THE rocks for sub $1M, renovated it and sold it for $1.5M within in 5 months... it was very well documented in media....

 

Generally, I'd spread it around in median or just-below median-prices places.

But based on my own strategy, with $2mil to spend right now I'd divvy it up like so:

1 x $750,000 on good sized block of land close to Bris CBD with house on it. Future development site.
1 x $550,000 house about 10km from Bris CBD on a decent sized block.
2 x $350,000 high cashflow properties within 25km or Bris CBD

Were I chasing higher cashflow I'd go for:

6 x $333,333 cash cows within 25km of Bris CBD

Naturally, everything I purchased would have potential to add value with a reno any time in the next few years.

 

Depends on strat and the properties.

I would likely look at 1x 600k in Melbourne, 1x 500k in Melbourne + 1x 500k Brisbane and a 400k in Brisbane. Depends on if I needed a buffer or not.

 

At the moment what I'm doing is buying 8-9 ( or more ) at 200-250 . Five so far , looking for a few more . In 2013 we did the 4 at 4-600 option . We're going well with that ( long term holds ) , but in terms of percentage capital growth since then , in retrospect we would have done better with the 10 at 200 option .

We've done two subdivisions and done very well with them , BUT , a big part of why they worked was that we did them on our PPOR , so holding costs , outside a mortgage we would have had anyway weren't an issue . Also being on our PPOR meant we had less tax. We also held them for a while so we also benefited on the capital growth on the property which turned into two properties .

Developments can be overrated . While its easy to point to a successful development in the paper , things aren't always that rosy . I know of a couple of developments locally which resulted in the bankruptcy of the developer . One in Pentecost road where the holding costs caused the issue and one in boundary road where the recession we had to have stopped any sales .

Cliff

 

My properties fall in the 4x500k bucket, but the first two were purchased at 300k. They have gone up over 200k since purchase in 2010 and 2011

 

Affordability for the market in general plays a big part. Very few people can afford a $1M property, a lot can afford a $500k property, almost everybody can afford a $200k property (but not everyone wants the $200k property).

This leads to the median value for a general location. Many years ago a spruker was suggesting to go with properties that are just above the median value. This puts them at a price point that is generally affordable and generally in reasonable owner occupied good demand areas. This in turn tends to drive long term growth. I didn't agree with everything this spruker said, but I thought this was decent advice and its served me well.

At the high end of the market the yields tend to be terrible which will make the property harder to hold. The low end of the market is likely to have good yields but these locations tend to have lower socio economic populations which are more vulnerable to unemployment. This can mean more unpredictable growth.

Certainly different price points have merit as well as downsides, even a combination can work very well. As others have indicated it's good to understand your strategy and any properties place in it.

 

1st, Personally I'd rather have 5 (or more) easy to rent (affordable even on benefits) to assist with servicing if one or two are vacant for a period.
2nd, Location and land size/zoning (development potential, perhaps pickup the neighbors when available) with no body corp.
3rd, Make them VERY low maint in & out, prefer double brick (easy in WA) compared to gyprock getting kicked in etc.

 

Far too simplistic to look at investing in terms of 2 x 500 vs something else etc. You need a goal and a strategy to get there. Plenty of examples of people buying a couple of blue chip ips which are negatively geared and then run out of servicing. That's fine if markets rise, but if they don't, or don't rise enough to cover buying and selling costs then it really is a long term game of carrying on with working life whilst waiting for the market to rise, it's a gamble. Look at the pros and cons of various individual properties and how they can help you reach your goal, or not.

It's less of a concern for high earners who can buy multiples of high and low end but not everyone's in that basket.

 

Hi Allm

I hate the word cheap!!!... I prefer value for money... I would rather have one property that is good value then 10 properties that are cheap!!!.

Cheap is not buying smart!!! Smart buying is buying a property at price under market value.

 

What if the median is $1M?

 

Not nessesarily . We've done well buying at market value when an area is about to take off . Hopefully we're doing the same at the moment

Cliff

 

As the other posts indicate the simple answer is it depends.
If the median for an area is 300k then somewhere around this and probably slightly under would be a good idea. If the median was 500k then the same idea applies, I would be more concerned about value,yield, vacancy rate and potential for growth. Actually achieving any growth is the only variable a little out of your control.
Maybe determine your strategy first then determine a location which fits then look at the median price IMO.

 

In demand properties are also an important consideration.
There may be properties priced a little or a lot above the suburb median price, but if there is a scarcity for that type of property creating higher demand, that is worth consideration too.