Better to buy 2 CHEAP Houses or 1 EXPENSIVE House in 2024? Quantity vs Quality myth exposed!

Summary

In 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

00:00

🏡 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.

05:01

💰 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.

10:02

🚀 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.

Keywords

💡Investment Property

An investment property refers to a real estate asset that is purchased with the intention of generating income, typically through rental payments. In the video, the speaker discusses whether to invest in one expensive property or two cheaper ones, emphasizing the importance of strategic investment decisions to maximize returns.

💡Diversification

Diversification in the context of the video means spreading investment across different types of assets or locations to mitigate risk. The speaker highlights the benefit of buying properties in different states to avoid being overly impacted by regional changes in legislation or economic conditions, as illustrated by the example of Queensland land tax.

💡Growth

Growth, in real estate investing, refers to the increase in property value over time. The script mentions that cheaper properties have historically shown as much growth as more expensive ones, suggesting that investing in less costly properties could be a wiser choice for capital appreciation.

💡Yield

Yield in the context of the video is the rental income generated by a property as a percentage of its purchase price. The speaker points out that properties in the higher price brackets often have lower yields, making them less attractive for investors seeking strong rental returns.

💡Borrowing Capacity

Borrowing capacity is the amount of money a person can borrow from a bank or financial institution. The video discusses how higher yields from cheaper properties can positively affect a person's borrowing capacity, allowing them to potentially invest in more properties and grow their portfolio.

💡Equity

Equity in real estate refers to the difference between the market value of a property and the amount still owed on its mortgage. The script suggests that having properties in various states can allow an investor to extract equity from properties that are rising in value to further invest.

💡Rental Crisis

The term rental crisis in the video refers to a situation where there is a significant shortage of affordable rental properties, leading to increased rents. The speaker uses this to argue that cheaper properties are more likely to be rented quickly and for longer periods due to higher demand.

💡Portfolio Value

Portfolio value is the total worth of all the assets in an investment portfolio. The video emphasizes the importance of maximizing portfolio value through strategic property investments, particularly by choosing properties with higher yields that can lead to more borrowing capacity and growth.

💡Interest Rates

Interest rates are the cost of borrowing money and can significantly affect the affordability of properties. The script mentions that current interest rates are not expected to drop to zero soon, which influences the desirability of affordable properties with higher yields.

💡Rental Pool

Rental pool refers to the group of potential renters for a property. The video argues that cheaper properties have a larger rental pool because they are more affordable to a greater number of people, which can lead to easier and quicker rentals.

💡Quality Property

A quality property is one that is well-constructed, well-maintained, and located in a desirable area. The speaker clarifies that buying cheaper properties does not mean sacrificing quality, but rather finding properties that offer good value for money and are likely to appreciate in value.

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