i would just like to understand the pro's and cons of owning many properties but only being able to pay off the interest vs owning one IP and paying down as much as possible leaving you with a fully owned propety and a cashflow. i sort of understand the capital growth side of it with many properties growing
any help would be greatly appreciatedMy first post
Adv: Owning more than one property spreads your investment risk eg if one is empty you are still getting income from the others, if one area is underperforming then hopefully the others aren't, lower management fees (if they are all managed by the same manager)
Dis: Liability for land tax, more holding costs eg rates/strata levies on 2 or 3 properties as opposed to a single property etc
The effect of compounding will allow you to accelerate the wealth much faster if you have multiple properties.
Say it took you 15 years to pay off 1 property completely.
Now, you keep buying properties from year 1, for 10 years, 1 property every 2 years (5 properties in all), and pay interest only on the loans.
By year 15, the cap growth over the portfolio would be enough to sell off say, 2 properties (the first 2 you buy) and retire all the debt over the protfolio.
You would now have 3 properties that you own outright, and the rent.
Paying off one property would accelerate the cashflow return more quickly, as you would owe less each year and the rents would go up, but I don't think the amount would be significant enough to stick at one property rather than doing the multiple properties.
thanks guys
its great being able to get answers to specific questions
this forum looks like it will become a great help over my investing years<br /
:)” title=”>:)” class=”bbcode_smiley” />Time frames are a consideration. In the time it takes to pay off one property you may have borrowed money and purchased 6 properties that have grown in value. However the interest costs and the holding costs and capital gains tax cut into the profit as you are forced to sell some properties at the end of the time period to bring down the debt. If you can pay off one property and then borrow money and buy another you can offset the income against the negative cash flow second property and the income of property one and two could be used to help pay off property two. Once you have property two paid off and one paid off you could borrow and buy property three and use the income from property one, two and three to pay off property three.
Property one is the hardest to pay off, Property two is a bit easier, property three is going to be easier, property four is going to be easier again. See the compounding effect if you return the income to building wealth.Having had time to think about this question many properties also attracts State Land tax if the properties are in the same state of Australia.
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