1 expensive investment property vs multiple cheaper ones?

[beginner]

Is it better to buy 1 single expensive investment property or multiple cheaper investment properties with the same overall total value?

[BusyLizzy]

It depends on what you are trying to achieve with your property investing?

What are your goals?

[beginner]

my goals are long-term financial independence and early retirement - but what difference does that make to the answer?

- oh i see you mean cashflow?
I guess I am not too bothered about cashflow at the beginning

i though 1 property would be a lot easier to find/manage and might have more sustained longterm growth being in a better area rather than multiple properties in cheaper areas?

[spurner]

Without a doubt, less properties of a higher value.

I can't think of a single valid reason why 'cheap' properties would make a better investment. And before someone says 'less risk', I think that buying multiple cheaper properties is a far riskier proposition than buying dearer, better quality property.

There is a reason why certain properties are 'cheap' - and that is poor town, poor location, poor tenants, poor capital growth, and management problems. You just have to weigh up whether it's worth it or not.

And yes I am sure there are people out there who have invested successfully in 'cheap' properties. But I think in general, more expensive properties are better!

Here is a semi-recent thread which may be of interest.

Happy Investing!

[Hound]

Quality before quantity. Location, location, location.

Or in the case of music or design, less is more. It's all the same principle.

-Hound

[LondonKiwi]

Its a good question, one you need to question yourself.

That all depends of your definition of cheap! My 500K may be cheap to me, expensive to others. However my 1.5 Mill which is expensive to me will be cheap for some.

To answer your question you do need to ask yourself what market you want to be in. Personally my target tenants are professional couples who pay me by direct debit, who never miss a payment but who want all the mod cons in their property, close to town, new or near new design, garage for their nice cars etc. Thus my target property is in the 500k mark.

This was the reason that BusyLizzy posed the earlier question.

LK

[beginner]

I can potentially buy approx $1.2million worth of investment property (with maximal borrowing) and was wondering which of the following Auckland options would be best in the longterm

-1 x million dollar property in the Eastern bays or
-2 x $600k properties in the Eastern bays or
-3 x 400 properties on the North Shore
- 1 or 2 $400k on the North Shore + 1 or 2 400k quality central Auckland apartments

[No Regrets]

personally I would go with the three $400k properties on the North Shore, but then as stated above your purchasing needs to fit in with your strategy/goals.

[tricky]

3 * $400k North Shore - based on the info/choices supplied.
What rental returns would each option have?
I might change my mind depending on yields.
Do you need a minimum return to fund these purchases?

[beginner]

they were only ideas - no specific properties in mind at the moment

I wouldn't need much return to fund them at the moment due to excess disposable income and would be glad for the tax refund (yes I know I still have to fund the shortfall but thats ok with me)
- at a guess, I think the yield on the million dollar property would be very low around 3-4%, for the north shore properties around 5%, for AKL quality apartments around 6%

the only area i know fairly well is the eastern bays and it seems to me that higher end properties (>$900k) will always gain (as they have been) as cashed up foreigners coming to NZ will love the location which i feel is ideal and beats anywhere else in/around Auckland (10-20 mins drive to city centre, good schools, minutes walk to beaches, restarants, cafes, parks) - so a downturn in NZ property and NZ economy is almost irrelevant because the foreigners can afford them
- one of the local RE agents who sells high end properties tells me she has sold numerous such properties over the last 4 years, over 90% of them to foreigners

nearly every few weeks I have seen overpriced high end properties being sold to foreigners who are not really concerned if they are good value, but simply want a v.nice home in a v.nice place to live, particularly those middle - upper middle class UK foreigners moving to NZ for quality of life reasons.

$1million for a beautiful home near the beach and city centre seems an unbeilevable bargain if you are a typical middle aged professional coming over from London or other big uk city - who cares if it is overpriced by kiwi standards?

- i am theorising that the properties <$900k will be subject to the same local economy influences as other AKL properties so may not be such a good idea

[k1w1]

who cares if it is overpriced by kiwi standards

You underestimate these people. They haven't made a ton of cash in the UK by spending it unwisely.

[LondonKiwi]

I'd be surprised if you got even 3% on a million plus property.

In my experience a $270k property can get me $360 a week rent, however a 540K property doesn't get me $720 a week rent and thus a 1.2 million property won't necessarily get $1500 + a week rent.

The last option is definitely the one to go for.!

Rest assured just because you earn pounds it doesn't mean your due dilligence goes out the window!


LK

[beginner]

You underestimate these people. They haven't made a ton of cash in the UK by spending it unwisely.

I disagree 100&#37; - I personally know many (>20) UK professionals that are relatively financially ignorant - typically early middle aged UK Drs and lawyers who made money by having relatively high income jobs in the UK - they are not particularly well-off by UK standards (in fact many of them struggle financially) but when they come to NZ they are relatively much more wealthy.

In the UK they would typically own an unimpressive 3 or 4 bdrm surburban house worth approx $1.2million - in NZ that buys a much nicer house and they are very happy to spend that much for what they will often see as a dream house. It may be an unwise purchase from a kiwi perspective but not from the other.

This may be a particular subset of immigrants and obviously doesn't apply to all UK people but it certainly applies to a large enough number of them tomake a difference at the upper end of the market.

I went to a friends BBQ last weekend in Mission Bay who was in exactly that situation - his family were visiting from the UK and they were amazed by great a bargain his $1.6 million property was, although I think most informed kiwis would say it was probably worth closer to $1.3million but he was egged on to pay too much by the RE agent.

the same happens in other countries eg. in thailand there are many UK expats who go for the great retirement lifestyle and will just buy a beautiful house at an overinflated price - because they can afford it, so they are not too bothered about paying a bit over the odds.

[LondonKiwi]

Begs the question though how does that influence your decision? They aren't going to rent off you so unless you are setting yourself up to trade these properties how does that affect you?

Again comes back to knowing you market, your goals and what you want to do, not these UK buyers!

LK

[srv]

What's the demand like for the higher end rentals? Is finding tenants a problem?

eg. If you buy a million dollar pad you would need to rent it for around $1600 a week, most people that can afford this would already own their own home so you would be aiming foreigners & rich people that are in the process of building their own home...

Then again due to reasoning like that the supply of high end rentals must be limited as well...??