Buy 1 property with more equity – or buy 2 with less?

Get an LOC on 80% of your house, buy as many properties as you can with enough equity to break-even (interest expense + rent income = 0, factoring in 2% rate rise). With the equity and cash you probably can buy 3 houses if not more (30% deposit on each).

1. property selection is important – buy only investment grade property
2. if you're new to investing in property, this exercise will take time. dont rush. If I were you, I'll buy one property at a time, and adjust my selection strategy along the way.

And then just wait comfortably until house prices go up enough, then formulate your next move.

I'm a risk taker. If I have what  you have, I'll buy 5 properties and negative gear this year. But then that will carry much higher risk. But hey… to be honest, with that equity and spare cash, I'll quit my job and trade/invest full time in both share and properties. (unless I really love my job and it pays me very well)

I'm learning too. Anyone see any problem with my hypothesis? Or am I being naive? I'm half way towards this scenario myself…

j900,

Fundamentally, there is no major flaw in logic in what you are recommending.
However, keep in mind that there are people in different stages in their lives, and risk may not be a very attractive option. It will be remiss of us to assume their taste and preference.
Having said that, personally, I would probably invest in multiple asset classes (not just properties) in order to diversify the risk. If I can only invest in properties, I will buy in different states with a mixture of high growth and high rental.

With regards to your situation. Firstly, I commend you for your passion and enthusiasm.
However, I would recommend that you critically assess your circumstances before being too aggressive. Interest rate are at its historical low, and analysts/experts suggest that they will be going up. For example, would you be able to finance your serie of mortgages if interest rate was to go up by 2%? And if you have fixed your interest, will you be able to afford 3 months worth of mortgage interest if your tenants were to skip town? These are not rare occurrences, and Murphy law suggests that it will happen!

Also just being a bit of a devils advocate here, how would you feel if the property bubble pops at the end of the year, when interest rate hikes, first home buyer boost runs out, unemployment rises, increasing number of foreclosures – and all your newly acquired properties all drop by 20%?
Market volatility is an integral part of property investment, you have to take into account of different risks. But you obviously understand the risk involved as you clearly state, so you may have already factored in all these.
(mind you, for the record – if you have read my other postings – you will know that i have a positive outlook for residential properties in the east coast in the next couple of years)

One last comment about acquiring too many negative gearing properties, assuming it’s in your own name, you will eventually run out of servicibility. You will need a good broker to proceed.

.

Best of luck to the both of you!
Kenny

j900,

I agree, Shane should be in a position to purchase multiple properties and still be able to get them cash neutral (or even cash positive) with good capital growth and rental. Seeing that he is a middle income earner, he can look for cash positive to supplement his income. His equity and lump sum can be better used.

As Matt (mxd) suggested, Shane should speak to a financial advisor / accountant to determine the best approach to maximise his return.

As for you – sounds like you know exactly what you want and you are well on your way! Well done!

Kenny