Better to buy 2 CHEAP Houses or 1 EXPENSIVE House in 2024? Quantity vs Quality myth exposed!
Summary
TLDRIn this video, the speaker discusses the merits of investing in two more affordable properties versus one expensive investment property, given a $150,000 deposit. They argue for diversification, growth potential, higher yields, better borrowing capacity, and improved rentability of cheaper properties. The speaker emphasizes the importance of quality over quantity and suggests that investing in properties under $500k-$600k can lead to a more profitable and stress-free portfolio.
Takeaways
- 🏡 Diversification is a key advantage of buying two properties instead of one, as it allows for investment in different states and reduces the impact of regional changes in legislation or rental laws.
- 📈 Smaller, more affordable properties have the potential for greater growth compared to expensive properties, especially considering the last 3-5 years' trends where lower quartile properties have risen more.
- 💰 High-yield properties, typically found in the cheaper price range, are more likely to cover their costs through rental income, making them more financially viable in the long term.
- 🏢 Buying cheaper properties can help preserve borrowing capacity, as banks are more likely to lend to investments with higher yields, allowing for the scaling of the investment portfolio.
- 📊 The demand for renting affordable properties is generally higher, which can lead to faster and more consistent rental occupancy, reducing the risk of vacancy.
- 🌐 Investing in properties under $500k to $700k can provide a better rental yield, making them almost self-sustaining and more attractive to banks for future loans.
- 🏘️ The speaker suggests that cheaper properties do not equate to lower quality, but rather, they should be chosen for their affordability and potential for high yield.
- 📉 Expensive properties, particularly in high-end markets like Melbourne and Sydney, often have lower yields, making them less attractive for investors looking for immediate returns.
- 💼 The speaker emphasizes the importance of maximizing portfolio value over vanity, focusing on the quality and quantity of properties to achieve growth.
- 📈 By purchasing two properties with a higher yield, investors can potentially increase their total investment value beyond the initial budget, thanks to better borrowing conditions.
- 📚 The script highlights the importance of due diligence when choosing properties, considering factors like rental market demand, potential for growth, and the impact of regional legislation changes.
Q & A
What is the main topic of the video script?
-The main topic of the video script is discussing whether one should buy one expensive investment property or two cheaper ones, and the pros and cons of each approach.
What is the first pro mentioned for buying two investment properties instead of one?
-The first pro mentioned is diversification, which allows the investor to spread risk by owning properties in different states and being less affected by changes in local legislation or rental laws.
Why does the video suggest that cheaper properties might grow more than expensive ones?
-The video suggests that cheaper properties might grow more because, over the last 3 to 5 years, properties in the lowest quartile of property values have risen more than those in the higher percentiles.
What is the second pro of buying two cheaper properties according to the script?
-The second pro is growth, as cheaper properties have the potential to grow just as much as expensive ones and are more appealing to a larger pool of buyers due to current interest rates and borrowing capacities.
Why are cheaper properties considered to have better yield?
-Cheaper properties are considered to have better yield because as property prices increase, especially above 600-700k, the rental yield tends to decrease, making cheaper properties more attractive in terms of rental returns.
What is the impact of high yield on borrowing capacity according to the script?
-High yield properties are more attractive to banks, which means they are more likely to lend more money to investors, thus preserving and enhancing the investor's borrowing capacity.
What is the fourth reason given for buying cheaper properties?
-The fourth reason is that buying cheaper properties with higher yields can help maximize an investor's portfolio value by allowing them to borrow more and invest in a larger market.
Why are cheaper properties considered more rentable?
-Cheaper properties are more rentable because they are more affordable to a larger pool of potential renters, which can lead to faster and more consistent rental occupancy.
What is the speaker's opinion on the rentability of cheaper properties in the current rental crisis?
-The speaker believes that cheaper properties have the capacity for higher rentability, as they are more likely to be rented out quickly and consistently due to the high demand for affordable housing.
What advice does the speaker give for property investors in Sydney or Melbourne with a large budget?
-The speaker advises against investing the entire budget into one expensive property in Sydney or Melbourne. Instead, they recommend diversifying into other states and buying properties in the 400-600k bracket for better yield and growth potential.
What is the speaker's final recommendation for property investors?
-The speaker's final recommendation is to buy inexpensive but high-quality properties, not 'cheap and nasty' ones, to ensure a stress-free portfolio with good rental demand and potential for growth.
Outlines
🏡 Diversification and Growth with Two Investment Properties
The speaker discusses the advantages of purchasing two moderately priced investment properties instead of one expensive one. The main points include the benefits of diversification, which can protect against unpredictable future changes in rental laws and legislation. They also mention that cheaper properties have shown to grow as much as expensive ones, if not more, in the last 3 to 5 years. The speaker emphasizes the importance of yield, stating that properties around the 4-500k range tend to have higher rental returns, making them more self-sustaining in the long term.
💰 Maximizing Borrowing Capacity and Rentability
This paragraph focuses on the financial benefits of buying cheaper properties. The speaker argues that high-yield properties, which are more affordable, help preserve borrowing capacity, allowing banks to lend more, thus maximizing portfolio value. They also discuss the current rental crisis and the potential for higher rent payments, suggesting that cheaper properties are more rentable due to a larger pool of potential renters who can afford them. The speaker encourages buying properties under 500k to 700k for a stress-free portfolio and easier management.
🚀 Investing Wisely in Inexpensive Properties for Diversification
The final paragraph reinforces the idea of investing in inexpensive properties for diversification. The speaker advises against sinking a large sum into a single property in Sydney or Melbourne, which may yield poor returns. Instead, they suggest spreading the investment across other states, targeting properties in the 4-5-600k bracket to achieve better diversification and potentially higher overall growth in the property portfolio.
Mindmap
Keywords
💡Investment Property
💡Diversification
💡Growth
💡Yield
💡Borrowing Capacity
💡Equity
💡Rental Crisis
💡Portfolio Value
💡Interest Rates
💡Rental Pool
💡Quality Property
Highlights
The speaker discusses the pros and cons of buying one expensive investment property versus two cheaper ones with a $150,000 deposit.
Diversification is highlighted as a pro for buying two properties, allowing for investment in different states and reducing risk.
The unpredictability of long-term changes in rental laws and legislation is mentioned as a reason for diversification.
The speaker argues that cheaper properties have the potential for similar growth as expensive ones, based on recent market trends.
Yield is emphasized as a key advantage of cheaper properties, with higher rental returns compared to more expensive ones.
The impact of interest rates on borrowing capacity and the importance of preserving it for future investments are discussed.
High yield properties are said to be favored by banks, potentially allowing for greater borrowing capacity.
The speaker suggests that buying cheaper properties could lead to a larger overall investment portfolio due to better yields.
The current rental crisis and the potential for continued rent increases are mentioned, impacting property investment decisions.
Cheaper properties are argued to be more rentable due to a larger pool of potential renters who can afford them.
The speaker shares personal experience of avoiding common property investment headaches by focusing on affordable areas.
A recommendation is made to consider buying properties under 500k-700k for better yields and rental demand.
The importance of not sacrificing quality for affordability in property investment is emphasized.
The potential for higher returns by investing in multiple cheaper, high-yield properties rather than one expensive property is discussed.
The speaker encourages sharing this perspective with those who may disagree, highlighting the value of diverse investment strategies.
The video concludes with a personal anecdote about the speaker's son, adding a relatable touch to the investment advice.
Transcripts
hey guys we're just at the park here
playing some ball I wanted to do a video
on whether or an episode I should say on
whether you should buy one expensive
investment property or two cheaper
investment properties like let's say you
have the wherewithal the deposit let's
say you've got $1 $150,000 saved up
you've got the boring capacity to buy a
million dooll property let's say in
Melbourne or Sydney should you do that
or should you do
actually break it up and byy two around
4 500k each so we'll go through five
pros and cons the first pro of breaking
it up and buying two rather than one is
diversification by buying two you're
able to buy one in let's say one state
another is in another state and
diversification is always a good thing
because the future is unpredictable of
course we use data to almost
Almost 100% predictably you know
understand what's going to happen in the
short medium term but often times the
long-term rental laws changes you know
legislation changes so many things can
change just like we were scared or a lot
of people were scared about Queensland
land tax so if you had two in Queensland
that would have impacted you more had
you had one in Queensland versus one in
New South Wales so there's various pros
of diversification and if uh you do go
ahead and scale a portfolio like so many
people including myself you know we've
got we've got property in so many states
around Australia There's Always
Somewhere That's rising in value okay
and that allows you to always be able to
pull out equity and build more and more
of a larger portfolio so that's one pro
of of cutting that million dollars and
buying two instead of one and I'm you
don't have to buy 500k right you can
even buy 400k I'm just giving an example
the second Pro of cutting it and buying
two as opposed to one expensive uh
property is growth right now and as
always been the case cheap properties
grow just as much as expensive
Properties by the way I'm just walking
around for no apparent reason um in the
park while while my uh while my son and
uh and wife they play ball over there
it's always been the case so why buy one
expensive property it's not like it's
going to grow anymore in fact fact if
you actually consider the last 3 to 5
years it's the 25th percentile or the
lowest quartile of property values that
have actually risen more than the 50th
75th percentile and the most expensive
types of property so why buy super
expensive properties when they're not
going to grow anymore anyway and
especially with interest rates the way
they are I mean they're not going down
to zero anytime soon right
the way that the boring capacity is a
little bit restricted these days that
really means that the buyer pool is more
skewed towards affordable properties so
if you're buying something for a
million2 million you know you're you're
kind of giving yourself less opportunity
for growth than if you're buying for
$400k 500k that's the second point the
third Point uh why you should buy two
smaller uh you know cheaper properties
and I'm not saying sacrifice the quality
okay 500k doesn't mean you're buying a
cheap and nasty we're buying a cheap and
Quality Property the third reason why it
makes a ton of sense is yield yield is
obviously the rental return that you're
getting on that property when you hit
600 700k especially 750k yields really
tank and that's why in expensive
property markets like Melbourne and
Sydney the average yield is like 2 to 3%
it's really not investment worthy if you
ask me so if you buy something around 4
to 500k what you're doing is you're
getting that property that almost
basically pays for itself or maybe if it
doesn't today in a year or two it will
because perhaps interest rates go down a
little bit but we know that rents
definitely rise all right so that's
another reason why cheaper properties
are better because they allow you to
hold that for the long term the whole
idea of property investing is should
never have to sell your property but I
got DM this morning and there was a lady
saying I just bought this 700 800k
property in Sydney it's costing me
$36,000 a year to hold that's not a good
outcome all right instead why not buy
something around 4 to 500k not in Sydney
get it yielding 6 7% almost paying for
itself and that allows you to then
escalate and scale your portfolio reason
number four you should buy inexpensive
properties rather than expensive
properties is borrowing capacity and
this is related to the point that I just
made around yield if you're have a if
you have a high yield if you have high
cash flow the bank is going to penalize
you less and therefore it helps preserve
your borrowing capacity and this is a
really important point I think even
sophisticated investors or height net
worth investors they don't understand
this right it's all about maximizing
your portfolio value this is not about
vanity oh look PK's got 13 properties
you know oopd whatever vanity is the
number of properties but we want quality
and quantity and it's through the
quality and quantity combined that we
maximize our portfolio value when we
have as high a portfolio value as we can
get that is what the growth occurs on so
you want to be be in the game and by
maximizing your borrowing capacity by by
buying high yield properties you know
when the banks love you they love those
high yield properties 6 7 8% they're
going to lend you more than had you
bought even at the same price point but
only yielding 3 or 4% let's say in
Melbourne Sydney so by buying these
types of properties you're able to
borrow more okay your borrowing capacity
is better and when your borrowing
capacity is better you can maximize your
portfolio value more of which that same
or higher amount of growth means a
higher return in the future you rather
have a million dollars invested in the
market right than just 500k and here's
the thing by buying two properties
inexpensive rather than one let's say
you could otherwise afford a million
doll property but that's yielding three
or 4% by buying two okay you should be
able to buy a portfolio worth 1 .1 1.2
maybe even 1.3 million because by buying
cheaper properties higher yield the bank
is going to lend you more money and so
you'll actually have more vested in the
market by buying these types of
properties all right I hope that point
really lands that's number four number
five is
rentability of course we're in a rental
crisis rents have shot up so much uh
lately and I'm not going to go into it
in this episode I've covered that so
many times on how and why that is and I
don't see that stopping anytime soon the
rate of rent growth may stop but rents
will continue to rise and I think a
little bit contrary to what others think
I think there's plenty of capacity for
renters to pay more that's not a popular
opinion but I'm just going by by the
statistics we still on average in
Australia the average renter pays under
30% of their income towards rent and and
if you compare that to oecd or other
developed Nation benchmarks that's up to
40% up to 50% so I'm just talking
economically right and I don't wish ill
upon anyone but those are just St
statistics and the here's the thing the
properties that are inexpensive those
properties that are cheaper they have
the ability for you to get rented faster
and for longer and of course you I'm not
saying buying super cheap Properties or
and socioeconomic areas where there's
rough housing commission nearby you know
of course you have to do due due
diligence you know things like renters
Market rent a percentage on Market you
know we don't want to buy buy a suburb
even if it booms where almost every
property is a rental property we don't
want High vacancy rates Etc but what I'm
trying to say is when you buy a cheap
property your rental pool the available
renters the demand is much higher
because it's affordable whereas if you
buy a million dollar property and try to
rent it out there's less people that can
afford it I'm not saying no one can
afford it of course different suburbs
have different Dynamics but on average
you're giving yourself the best chance
of a stressfree portfolio by buying
properties under 500k under 600k maybe
under 700k that's exactly what I did and
people always think oh what about you
know tenants trashing the place tenants
default in all this headache that comes
with property investing I never really
faced any of it because I bought in
affordable areas where renters were
plentiful and that's really the fifth
reason why I recommend you should buy
Sub you know basically inexpensive cheap
types of properties but not cheap and
nasty cheap and high quality so if you
are in Sydney if you are in Melbourne
and you have the ability to go off and
buy a million million half dollar worth
of property don't sink that entire you
know War chest into one poor yielding
asset in Sydney or Melbourne rather
diversify into other states at the 4 5
600k bracket hope that makes sense if
you know someone that disagrees then
share this episode with them hit the
like button hit the Subscribe button I
think my son wants to play with me again
I'm out thank you so much guys see you
later
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