Property Portfolio: 10x$300k versus 4x$750k

Definitely fewer expensive properties. I saw about ten years ago my hero, Margaret Lomas, move into blue chip over 1 million units in kirribilli and neutral bay. A far cry from her "buy at $100k, rent for $150pw".

I used her formula to buy about ten places for around $100k and rented for about $200pw. I did very well. I had no choice as I was low income. I HAD to choose + cashflow. But I found some areas had little cap growth. And the worst: each property absorbs X EFFORT (taxes, purchase, management) so I'd rather spend X EFFORT on a 1 million place (with much better tenants) any day than 4X EFFORT on 4 x 250k places.

And like Margaret, I have recently moved into the realm of over $1 million rentals and their growth is stunning. (in sydney). My tenants are company directors on 500k pa.

No more ice addicts!! No more regional pains, busted water systems, rotten stairs, arsonists burning down the houses in my street, termites!! No more headaches. This is what god intended property investing to be like

 

Go Poppy

 

Where growth rates are equal cheaper properties are by far superior I think - but will growth be equal or better in cheapies?

Strategy: Consider multiple cheaper Properties Strategy: Consider multiple cheaper Properties

 

For me, we have 1 PPOR and 3 IPs, all bought at 580K - 665K range, most IPs hovers around 600K. I think it is great as this price is dual income range, and works well for us. I would definitely prefer fewer IP of higher values.

 

In this thread , in my opinion this is by far the best answer
It is more in the details than the size and volume

 

Terry I can tell you (I have both) ....in about 100 years time

 

Probably not the way to buy IPs, but I'd currently be happy to live in any of mine. I can see buying cheaper ones would have a few pros though...
More expensive ones... I can't see a need to buy them unless the block has some special features. But then borrowing capacity really comes into play.

 

I have a theory that the cheaper ones should grow faster than the more expensive ones - to some degree. For example as people get priced out of Sydney they start to look at outer suburbs and these prices will increase due to higher demand.

So far this theory is not holding up before places like Bondi in Sydney just keep going up and up.

 

Great thread. Personally i favour the 'less is more' approach - property has a time cost (compared to other asset classes at least) and 10 of them sounds more painful than necessary.

Nonetheless, adding a finance perspective to some of the comments:

10 x 300k:

Offers a greater overall portfolio borrowing capacity (assuming same yield).

This approach offers greater scope to diversify lenders over time. In Aust, most commonly only one bank can hold mortgage over your security. With 10 securities, you can theoritically offer 10 different lenders, 10 different calculators, etc. This 'flexibility' tailored with some structured financing offers scope to marginally improve your total portfolio's capacity.

Also, our financing environment does lend weight to diversifying locations. Again, with good structuring, can release equity based on individual security growth, rather than portfolio. Having 10 separate locations + property cycles moving at different paces across the country, should mean that theres greater scope for continual equity at different times.

Growth may be lower, so less equity overall. But it should be more diversified, hence more frequent and more readily available.

You do lose this benefit if you go and buy 10 properties where growth is correlated with each other. E.g. 10 in one district/area/state.

4 x 750k approach:

History & land scarcity does suggest this should have better growth (but lower yield).

2 x 1.5mill approach (for arguments sake):

Some prefer this approach too. LMI options reduce, meaning a higher upfront capital contribution required for this approach.

 

Terry, the facts tell us cheaper property grow faster (see my picture above). That's natural process.

You're right that most people buy cheaper properties, because most people simply can't buy more expensive properties. There is higher demand, but the number of such properties is much more than expensive ones. Just imagine a small circle (area1, <10 km from CBD) and a large circle (area2, >10km from CBD). The area2 is much more than area of area1.

Now imagine the prices goes up by x% in area2. People living in area2 now think "Ok... now the prices in area1 and area2 are equal (or almost), it's better to live closer to CBD, why not to exchange? So many of them sell in area2 and buy in area1 to be closer to work, beaches and everything. As a result, the prices in area1 are going up and demand now is very high there, so the prices may easily end up with a growth higher than in area2.

So when the government introduce some stamp duty exemptions for area2, it will eventually move the prices higher in area1 as well. Such event creates a price growth wave, it just a matter of a few months till it reaches expensive suburbs.

That growth for cheaper properties (triggered by some regulations) can only temporary be faster than the growth in more expensive properties.

 

I personally have made money in higher value homes and lower value homes equally. It doesnt matter as long as the numbers work out.

(i.e)

Example 1:
House in Colyton Sydney in 2012 - $250k. Now its worth $650k. Positive cashflow from day 1 so I didnt put a single cent into this house since I bought it. Profit about $400k.

Example 2:
Bought a house in Northmead in 2012. $600k. Now worth probably $900k - $1million. Negative cashflow from day one so since 2012 I have been paying interest out of my own pocket. Same profits if I sold today of around $400k or less because I had to add my own money into this place to keep as yield was low compared to my Colyton house.

Example 3:
Unit bought in Auburn $210k. Today its worth $500k. Made around $300k and positive cashflow by a HUGE amount. Not a single cent spent on this place out of my pocket after purchase.

See the difference? I could continue to buy places like example 1 and 3 all day every day. However if I bought another 3 or so places like Example 2 I would be finished. My serviceability was be reached and my cash flow is limited, hence you limit your wealth building capabilities.

Repeat example 1 and 3 say over 15 x properties and your pretty much retired. Otherwise get yourself 4 of example 2 and you would be ahead but you could not retire most likely.

You can make money in cheaper or more expensive houses. The main thing is you need to see the potential and likelihood of an area increasing in value but at the same time maximising your yield so you dont need to put anything into them to hold.

 

I am a believer in "less is more" however understand there is a place for cheaper properties... particularly if and when it comes time to selling down.

I have only the 1 IP in Bayside Melbourne
($1.1 - 1.2m range) - rented for six years straight with only two tenants in total... zero tenant issues. Property costs are low... growth is strong but then again you could say that for most of Greater Melbourne.

 

Have you found your million dollar rental properties outside of sydney also have stunning growth or is sydney the only area where you have million dollar rentals?

 

Only sydney. It's a global city where locals are priced out of inner ring unless they were born here. Sydneys wealth in past ten years is thanks to black cash pouring in from china. Even 20 years ago BT purchased most the houses in a Harbourview street next door to my grandparents "for their staff"

Globalisation will continue. Melbourne is next to experience the impact. Probably not other cities unless it's Syd/mel refugees

 

According to RPData, 2012-2017 growth:
Colyton : 83%
Northmead: 76%
Auburn (apt): 69%

If calculate avg per year, all they showed similar performance.

Some suburbs closer to CBD (and more expensive), showed higher performance, e.g. Chatswood: 104%

btw,
example 3 is 10% below medium price in 2017, but it is 25% below medium price in 2012
example 2 is equal to medium price in 2012, but 10-15% below medium price in 2017
example 1 is 25% below medium price in 2012, but 10% above medium price in 2017

I may be wrong, but it looks like you overestimated 'good' examples, and underestimated 'bad' example... or you have some major changes in apartments / suburbs.

 

great posts guys.

I do notice one trend here. ALot of us (me too) favour the smaller quantity of properties with higher value price.

One difference here is all the successful investor thread stories, it seems to be the opposite?

 

I didn't underestimate anything. Those examples are actual houses i own and from recent valuations I've had due to refinance.

 

bank's evaluation is always within -15%...+10% range, especially at growing market - they use old prices to calculate the average, and often they don't care if your property has any advantages/benefits. For example, they evaluated my apartment 100K lower than the real sell price.