Reasons why you should buy an investment property under 600K

If you are on the average Australian income and looking to generate passive income through property investing then you should strongly consider properties under 500K. Here are 5 reasons why these properties would give you excellent returns.

1. Strong Rental Yields

If you target the correct location a property purchased at 400K could give you a rental yield of close to 5-6%. This means that you don’t have to spend too much out of your pocket to hold on to the property. Cash flow is crucial in building out a portfolio.

2. Future borrowing capacity

When you have healthy cash flow (5-6%) the property banks view it favourably and therefore this would actually help you with borrowing for future purchases. This becomes more important when your income isn’t too high. Future borrowing capacity reduces when you have properties with low yields.

3. Build a portfolio

By purchasing strong growth properties under 500K one has the option to buy a few of these properties and eventually build out a portfolio. Key is to know when to enter which market to get maximum returns.

4. Strong growth

If you can enter at the correct time properties under 600K can you give you strong growth-close to 30-40% over 2-3 years. Some examples are Hobart in 2016, Adelaide in 2020, Brisbane in 2020. It is a misconception to think that lower value properties don’t grow.

5. Opportunity to diversify

You could buy these properties in different states, diversify and de-risk your investment. This means that when one property performs poorly the other one still is doing well and when one property is vacant the other one still has a tenant and so on. Instead of buying one property for 800K it you could de-risk your investment by purchasing 2 properties for 400K and still obtain the benefits of compounding growth.