It’s one of the biggest questions of all.
Is it better to buy one blue chip investment property … or two in a growth suburb?
To some extent, the answer does depend on your situation.
But all things being equal, we recommend two more affordable properties over one at a higher price.
Having one property is simpler to manage than two. But managing an investment property is straightforward, and this really only becomes a factor once you’re holding 20 or more.
Here’s why we recommend 2 affordable properties over a blue chip property.
1. Diversification
The more properties you have, the more diversified you are.
It means being invested across different suburbs and even different states.
If one area slows down, you’ll have others still performing.
And this is good risk management because you spread your exposure out.
2. Stability
More properties mean more stability.
It’s not just about being diversified into different areas.
If you have two properties, when a tenant leaves you’re not losing your entire rental income.
Your safety buffer doesn’t need to be as large. The more rents you have coming in, the less you’re affected when one stops temporarily.
It also means that when your properties grow at different rates, you get a more consistent capital gain every year.
3. Higher rents
The affordable suburbs in our latest locations report have, on average, a rental yield of 4.6%.
Compare this to houses in the blue chip suburbs in our major capital cities.
Carlton in Victoria – 3.2%
Surry Hills in NSW – 2.8%
Newstead in Qld – 2.4%
I know these are only a few examples, but generally speaking, the higher the property price, the lower the yield.
Lower yields mean you’re chipping in more of your own money to hold the property.
And because your cash flow is lower, the banks will be more reluctant to lend to you again. That slows you down.
Of course, you might be thinking that the flipside is that blue chip properties go up in value faster.
Except that’s not always the case.
4. Affordable Properties Go Up Faster In Price
Everyone assumes that blue chip properties go up faster than affordable ones.
Not necessarily.
Take a look at the below chart.
In this instance, it proves the exact opposite is true.
The highest house price growth is in the lower 25%.
The slowest house price growth is in the most expensive 25%.
And when prices fall? It’s the blue chip properties that drop the fastest.
This is why we invest heavily in research to understand what actually drives house prices up.
And we have found that blue chip properties don’t always live up to the promise of higher capital growth. Add lower rental yields to this and you can see why we invest in affordable properties instead.
5. Affordable Properties Are In The Emerging Areas
While not all affordable properties are in emerging growth corridors, many are.
Growth corridors are areas with well-planned transport, shops, schools, hospitals and employment precincts.
And because everything’s ready and waiting, these areas are highly sought after by tenants and buyers alike.
6. You Get In Sooner
Not every investor can afford a $1million+ property straight away.
But you might be able to secure a more affordable one.
And this means you’re in the market with an asset which is growing.
If you’re waiting until you can afford a blue chip property, you’re missing out on significant capital growth in the meantime.
Remember, it’s time IN the market which counts.
7. More Strategic Options
Having multiple properties opens up more strategic options.
If one suddenly surges in value, you can pull out equity quickly and invest in another. And you can leave the other until you’re ready.
You could sell one to pay down your home loan. And this is a good move if that property has moved from a high growth phase into a lower growth phase.
Or if you suddenly need money for something, you can sell one house without selling the lot.
And this means you’re not wiped out in one hit.
Curious About What Your Options Might Be?
You might be wondering what’s possible for you by investing in affordable, high growth residential property.
And how it works.
If you are, you’re invited to spend some time with one of our Senior Property Wealth Advisors to see what’s possible for you.
This way you’ll know your options.
We’ll map out an overview of what you should do, and when.
We’ll give you the steps to make it happen.
Plus show the opportunities available in the market.
And of course answer any questions you have.
There’s no obligation or pressure here.
We’re confident that once you see the depth of our knowledge and experience, you’ll have everything you need to make an informed decision about your next move.
Put your details below and we’ll call you to book a cost and obligation free call.