One 1 million dollar IP or x2 500k IP?

Hi, just wondering:

say you have a borrowing capacity of 1.2 million dollars and can either afford to invest in a one million dollar IP or 2x 500k IP, everything else been equal, which would you choose and why? Which one think gives you more capital gain, which one is higher risk? Feel free to add in the reasons for your choices in this thread.

 

Thanks for everyone who has voted so far.

Could you also reply to this thread with your reason for the choice if you can? thanks

 

Hard to quantify..
But when I had a choice back in 2020 to choose which property I could buy with $800k budget.
I choose to buy 1P close to my limit.
The property have growth of 50% since bought.
I also had a choice to buy in another area 2 x $400k each. So far that suburb have only achieve growth of 35%

How much risk can you tolerate?

 

I would definitely go for 1 mil IP. Your chances of getting a property in a good location, closer to CBD, good school catchments is higher with that budget. These areas will always be in demand
If you go 2 × 500, most likely you will be pushed into Regional. You may get a good yield but it comes with its own risks. When it's booming everywhere, Regionals do well but they are also the first ones to bust when things go sideways.
Note I am not against regional - a lot of people here have made millions by investing in regional but it does require a certain level of savvy investing that may not be for everyone.

It ultimately comes down to your goals and risk tolerance I think.

*Personal opinion only

 

Thanks for the responses so far.

I have heard things both ways
- Higher priced property = higher quality asset = lower risk

But some people also say
- Lower priced but multiple properties in different locations = lower risk

Not sure what people's opinions are on these 2 opposite train of thoughts?

I know that in 2021, almost everything boomed, both regional and urban, so I would take the gains from last year as outliers rather than norm.

 

If you choose a suburb which have historical 5% growth yoy. Safe bet it will go hard when it booms. Plenty of data to prove it in all over east coast of Australia.

 

So which one did you go for?

 

If you can service comfortably, 1mil IP in right location, right property.

It's a price point many can afford.
Less tenant hassles
Less associated costs involved overall.
Usually will be a house for most places so can buy add value potential.
Likely to be in a decent ppor area so CG likely be better.

 

If all things being equal you would be better off with 2 cheaper ones for CGT as you could stagger the sale over 2 years. You could also save on stamp duty and land tax potentially. There is more flexibility with loans as there can be separately mortgaged with 2 different banks.

But 2 tenants means double the risk of a bad tenant, double the appliances that can need replacing etc

see this old thread too
Strategy: Consider multiple cheaper Properties Strategy: Consider multiple cheaper Properties

 

Another way to look at it there is 50% risk or a bad tenant v one 100% bad tenant. Glass half full / empty ?

There may be more volatility in a higher value property but it is "all eggs in one basket". If you do consider two lower value properties it may assist if they are in different areas v neigbouring etc. Different states may mean spreading land tax threshold ? But comparing growth potential Sydney v QLD are different profiles.

There is no right or wrong. Terry view on staggering etc for CGT is pretty true BUT then you will pay more duty for two than a single property, two lots of legal and so on. Mosts costs will be marginal and not fixed but when major repairs are needed it may be that this is multiplied x 2 if they are in same complex etc as both may be similiar age. Or two lots of major strata costs.

A common mistake some buyers make is chasing cheap. Then 8 years later they still lament and complain values havent risen, or cashflow etc. Cheap properties can also include old property with no depreciation, high repairs and poor areas. All factors compound. One better quality will cost more but then dont chase quality for a high price alone either. Avoid regions where growth is a "maybe". Some of these types of property only move in boom periods and cant sell in slowdowns. (eg regional towns)

 

Ive had both sorts of properties and would now avoid the cheapies

 

I have personally always been in the higher price (and presumed better quality) camp.

However, my wife is in the lower price camp. She feels it's less risky and "more room to grow". She is less comfortable with debt than I am.

This morning, I listened to the podcast of a certain buyer's agent and he was talking about the high risk with one high-priced property and he thinks spreading the risks amongst multiple properties is much safer than a single high priced property. So this got me thinking and hence this thread.

 

But if that podcast was rewound to 2010 would you have agreed knowing what you do now? Most people who have bought the highest value best quality property is a blue ribbon area. Hang the risk or even the interest rate (in reason). Hey I would have bought BOTH houses either side of mine. Same as how many people knowing what they do now regret haggling and missing a property for a few thousand etc ? In whole scheme of things its so trivial.

Any podcast or armchair expert can call shots about the future and make it sound wise. Let me ask this...are they suggesting you sell ? No. Perhaps they are flogging off in some area where low cost needs to sound like a brilliant idea. In financial markets this is "talking your book". If you own BHP and you want to sell BHP you dont tell people its headed to the bin. You tell them how iron ore will boom. I suspect they are talking their book.

There is a old adage to investing. You are either in or you are out of the market. You cant sit on a fence. With property you can "hold" but how often have people regretted that in the past 15 years ? Next thing they wake up to find its moving out of reach.

 

The why will give you the answer to the how. The depreciation and building allowance on each 500k property will more than cover any extra holding cost. Your cost base on 2 X 500k can be much lower. Higher yield and returns on that, whether invested or reducing principal and interest payments means loan reduction so a 35% GC may give much more equity than 50% on a negative cashflow more expensive investment. What's important is the exit, money in your pocket, assets retained and retaining the loan( that is the part that makes money and lets you eat you cake and eat it too while reducing tax) If you have 2 properties and 50% gain you can sell one transfer debt to the other one may be 200k, may be put 500k in your pocket of which only 100k is taxable a figure that can be offset to nothing. With one property you will have to sell the lot if realizing capital gain is the aim, pay more tax have and will be worse off as you will have to pay out your loan. Generally on expensive property poor yeilds wont give you servicability to access capital gain and allow achieving high returns on equity which I think the is the ultimate reason for capital gain.

 

I am more a “diversified type” mentality too but I won’t diversify until I can’t afford the location / city median price of the type of property I want.

so it depends on where and what you want to buy - if you go regional then 500k per property might be ok. If you want to buy in capital cities then definitely one asset of 1m in my view. Plus I don’t compromise the state / city location so I would split into 2 properties.

It would be a different answer if I have 2m and want to invest into Brisbane, Perth or Adelaide - I would actually buy 2x1m in those cities rather than one 2m property.

 

2 years ago I would have used the 2 × 500k properties are better, less 'lumpy than one mansion.

But this massive price rise means you need 1.5m or 2x750k properties to be comparable.

I think 1m is not quite enough for 2 properties....... I think you are forced into one.

Those that bought two properties a few years back, in Logan especially have locked in equity. But I think the horse has bolted

 

You see so many people that post here. They say they have bought 5 properties in 1 year.
But they are a lower end prices properties.

While I don't have story like that because I buy 1 property every 5 years.

Obviously I don't have any points to prove to anyone. "Look I have 100 properties" I am here to sell a book how I purchase 100 properties.
Or I buy 1 commercial property like a Westfield shopping center, It doesn't sound as impressive if I am selling a book how I purchase 1 commercial property.