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Is it financially better to invest in one property or two?

Building a multi-property portfolio is an excellent way to build wealth. However, at the beginning of the property investment journey, or at various junctures where money is freed up to invest, a common question we receive is ‘Should I invest in one property or two?’ The crux of the question is – when does it make sense to split your available capital and invest in two properties versus just investing in the one? 

The answer to this question is rarely straightforward. Firstly, it will depend on how much money you have to invest. If you have less than $1-$1.2 million it may be a struggle to find two suitable properties under $500-$600k. If you have $2million to invest however, it will obviously be a different story. 

Secondly, the decision will rely on your wealth goals. If you’re looking to build a revenue stream through rental income to fund private schooling for example, multiple properties may enable a higher rental yield, which will be a better fit for your goals. However, if you’re looking for capital growth over the long-term to set you up for retirement, one property with higher growth prospects may be more suitable.

The pros and cons of investing in one property

Pros of investing in ONE propertyCons of investing in ONE property
> Arms you with greater purchasing power to buy a better quality property.
> Prevents you from having to compromise on the type of property or location.
> Involves less complexity in regard to management and admin, with only one property manager and one tenant to liaise with.
> Keeps all your eggs in one basket, creating more risk.
> Caps the potential rental yield. Typically the higher the value of the property, the lower the rental yield.

Pros of investing in TWO or more propertiesCons of investing in TWO properties
> Allows you to diversify into different markets and property types which spreads your risk. If one market performs well and the others don’t you’re more insulated against a loss.
> Spreads risk in regard to rental income. It’s unlikely multiple properties would be untenanted at the same time, so this creates a safeguard should one be vacant for a time.
> Enables you to maintain a better rental yield. A multi-property portfolio may enable you to maintain a rental yield of 4-5%. This typically isn’t possible when investing in one higher value property.
> Makes it easier to liquidate. If you need cash quickly and can’t access equity, the ability to sell just one property from a multi-property portfolio versus selling your sole investment is advantageous.
> Potentially minimises land tax as you could build a portfolio across different states and each state has its own land tax threshold.
> Prevents you (if you have less to invest) from investing in higher quality properties and better locations, due to affordability. 
> Increases the admin and property management burden with more moving parts to manage.
> Limits capital growth prospects (in some cases), with lower value properties potentially being poorer quality or in more remote areas.

So, what’s the best strategy?

Ultimately, the decision as to whether to buy one or two properties will always come down to your specific financial position, wealth goals, risk tolerance and other factors unique to you. If you’re not in a position to invest in more than one property now, setting yourself up to invest again in the short to mid-term is always a smart choice.

If you have any questions or would like to discuss the best strategy for you, please don’t hesitate to get in touch with us. Click here if you would like to speak to one of our property specialists about your personal strategy.