Is It Worth Having Just One Investment Property? (Ep097)
Only a small percentage of property investors in Australia will actually go out and invest in more than one investment property. They may own their home and one investment property but it’s unlikely for the majority of the investors that they are actually going to go forward and purchase two or three or four or five or six or more properties.
So today I wanted to tackle the question ‘is it worth having just one investment property’? A lot of us look at these investors who own 10 properties of 20 properties or Steve McKnight who went from 0 to 130 properties in three and a half years. We look at that and we say “that is completely unachievable, I can’t do that.”
But when we think about in terms of just buying one investment property and we look out over our lives, we look and we say “well one investment property…if I plan right, if take my time I can do that and I can purchase one investment property.” So is it worth having just one investment property and is that a goal that we should strive towards? I’ve just got a few things that I want to talk about as to whether or not this is going to be worth your while?
Is It Hard To Achieve Financial Freedom With Just One Property
Firstly I want to address the fact that it’s going to be hard to achieve financial freedom with just one investment property. It can be done, I have talked in previous videos about an article I read where there was a little old lady who owned just two properties- her home and one investment property and she was retired and financially free and not reliant on the pension.
So she had split her investment property into a dual occupancy so she was getting two incomes from that and she had split a home into a dual occupancy as well so she was living in one part of it and renting another one out. So with just one investment property and her own home she was generating 3 different incomes for herself which allowed her to retire.
But for the majority of us one property probably isn’t going to provide us with the financial freedom that we desire. But that doesn’t mean that it’s not going to be worthwhile.
Owning One Investment Property Can Help You Pay Off Your Home Faster
Owning one property can help you pay off your home faster. Owning a positive cash flow property which spins off more cash than you have to put into it gives you an extra income source that you can use to pay off your home loan faster.
Or recently I did an interview with Don from Mortgage Choice, you can check him out by going to pca.im/don and Don suggested that a lot of investors when they own an investment property, final the rent and everything into the offset account of their home and of their personal mortgage.
And what that does is allows them to maximize that tax depreciation but it also allows them to pay off their home loan faster because they’re offsetting some of the interest. So owning just one investment property may mean that you could cut years of the mortgage of your own home.
You Can Get Capital Gains Over Time
Another benefit of owning just one investment property is that you can get capital gains overtime. So there is a saying that property doubles every seven to ten years and while this isn’t true for every area in Australia, we do say property prices continue to increase as a whole across the nation.
So by purchasing one investment property you might be able to see capital gains over time which means that your wealth is going to build up overtime as well. So if you can work hard and if you can get into the market maybe the property pays for itself and then you can just see this accumulation of equity overtime.
It Could Create A Steady Stream Of Income
Another benefit is that it could create a steady stream it income for you. So we talked about positive cash flow properties may be helping you pay off your home loan faster but properties and investment properties that are positive cash flow can also create this nice steady stream of income that you can use to find your lifestyle.
That might be over time when the property is completely paid off or it might be straightaway when you decide to go interest only loan, the properties are positive cash flowed giving you an extra $50 a week that you can use to spend on the lattes that you want to buy.
When we buy an investment property the money that it creates doesn’t necessarily have to be used to go ahead and invest again, we can occasionally draw this out and use it for lifestyle purposes.
An Investment Property Can Be Used To Supplement Your Super
So you just have one investment property on top of your super than that one investment property maybe be able to spin off a good amount of money per week which just pushes you up into that next level and makes you that much more comfortable in life.
Owning one property could be used to supplement your super. The majority of Australians are reliant on their super to fund their retirement. And the reality for a lot of Australians is that this super money and their retirement money will actually run out before they die.
So they don’t quite have enough money that it’s going to just continually generate enough money for them but they are actually drawing on that super, drawing on their investment fund and eventually they’re going to run out. By owning one investment property on top of your super it could act as a great supplement to your super and could draw out the life spend on your superannuation or could mean they don’t necessarily have to draw on the capital of your super but you could live off just the wealth that it generates.
So one property could be used as a supplement for your super. I’m not a financial advisor so obviously speak to your financial advisor about, all this stuff is for the general educational purposes only.
You Could Generate More Than One Income
With one investment property you could actually get more than one income for that property. Like the little old lady that I spoke about, you may be able to turn your property into a dual occupancy or maybe you can add a granny flat onto your property to create another income for you.
So when you’re investing in property you don’t just look at it and say well that’s all that it will make, that all that it will ever make, you could say “well I’m going to invest in this one property but because I’m only investing in one I’m going to make it the best investment I can and I’m going to find out ways is that I can generate more revenue, more income from this property.”
And maybe doing dual occupancy or subdivision or granny flat might be a way that you can take one property and generate multiple incomes from it. You could sell that one property later in life.
Now again this could be used to supplement your super or it could just be used by itself. Maybe you choose not to use it to supplement your super, it just sits there, it’s paying off its own mortgage and then overtime your super runs out.
You Could Sell That Investment Property Later In Life
Well maybe now might be the time to sell your property, access the equity that you’ve gained and you can then use that to continue to find your lifestyle without having to sell your own home. My grandparents were at a stage where they needed an influx of cash to pay for a holiday that they wanted to go on before they got to old.
Unfortunately they didn’t have enough savings to go ahead and do this and so what they did was they borrowed money against the equity of their home to go on this holiday. And what that meant was that overtime that interest was just accumulating, they weren’t paying it off and eventually they would lose their home.
Now luckily my father and his brother stepped in to help pay for that holiday and pay off that equity loan so my grandparents didn’t lose that house. But imagine you’re in a position where you want to go on a holiday, you decided that “look, I don’t want to wait until I’m too old, maybe I should sell a property so I can go on a holiday”, wouldn’t it be so much better to be able to sell an investment property then sell your own home?
That’s something that I think we should all think about when it comes to whether or not we should own an investment property on top of our own home. Because it’s very unlikely that later in life you are going to want to sell your own home.
It Could be Used As An Inheritance For Your Children
And lastly it could be used as inheritance for your children. So maybe you don’t sell it and maybe you keep it, it provides that great supplement for you that great influx of cash. And now when you come to the end of your life, that can then act as a great inheritance for your children.
So rather than then just getting your home or rather than then, just getting whatever you have left, your furniture and photos ,you might be able to leave a great investment nest for your children to help them go on to bigger and better things and live a more financially successful life.
You can obviously see that it can totally be worth having just one investment property. So if you believe that reaching for ten or reaching for twenty or reaching for 130 properties is way out of your reach and not something that you want to do, I would urge you to consider stretching yourself and consider purchasing and owning and investing in just one investment property.
Now I can’t provide that as financial advice, I don’t know your situation. I’m just asking you to consider this, to sit down, do the sum yourself, sit down with your financial advisor and say “is it worth me owning one investment property?” It is a great question to ask.