Is It Better to Buy 1 Big Property or 2 Smaller Ones?

It is the classic dilemma for investors with a healthy borrowing capacity. You have been approved for a million dollars in lending, or perhaps you have built up enough equity to make a significant move. Now you face a strategic fork in the road. Do you put all your capital into one high-quality blue-chip asset, or do you split it across two smaller, more affordable properties?

There is no single right answer, as it depends entirely on your risk appetite and financial goals. However, the maths and the mechanics of these two strategies look very different over a ten-year horizon.

Let us break down the pros and cons so you can decide which path aligns with your portfolio goals.

The Case for One Big Property (The Blue-Chip Strategy)

Buying a single, higher-priced property usually means buying into an established, high-demand market. Think of a terrace house in an inner-city Melbourne suburb or a family home in a premium Brisbane school zone.

The primary advantage here is scarcity. Properties in these locations are finite, and land values tend to be resilient. Because the land component is high and the location is desirable, capital growth has historically been strong and consistent.

Managing one property is also simpler than managing two. You have one set of council rates, one insurance policy, and one tenant to communicate with. If you are time-poor, simplicity has value.

However, the downside is concentration risk. If that one tenant leaves, your rental income drops to zero instantly.

You are also likely to face a lower rental yield. A $1.2 million home might only rent for $850 a week, meaning you will likely be negatively geared and covering costs out of your own pocket.

The Case for Two Smaller Properties (The Diversification Strategy)

Splitting your capital into two $500k to $600k assets allows you to diversify. You could buy one property in a growth corridor of Victoria and another in a rising market in Western Australia or Queensland.

This strategy is often the winner for cash flow. Cheaper properties generally offer higher rental yields. Two $600k properties might rent for $550 a week each, giving you a combined income of $1,100. This is often enough to cover the mortgage repayments, making the portfolio with limited negative cashflow or even neutral from day one.

You also spread your risk. If one market stagnates, the other might boom. If one property sits vacant for a month, the other is still generating income to keep the bank happy.

The Hidden Factor: Land Tax Thresholds

This is where the strategy gets technical and where a smart advisor adds value. Land tax is a state-based tax calculated on the total value of land you own within that state.

If you buy one expensive property in Victoria with a high land value, you may breach the land tax threshold and face a hefty annual bill. This eats directly into your returns.

By purchasing two smaller properties in different states, you can take advantage of the tax-free threshold in each state. You might pay zero land tax on both properties simply because you structured the purchase correctly across state lines.

Comparing the Numbers

Let us look at a hypothetical scenario over a decade.

Scenario A (One $1M Property): You buy a premium home. It grows at 7% per year due to high demand. After 10 years, the asset is worth roughly $1.96 million. However, you likely paid out of pocket to hold it due to low yield.

Scenario B (Two $500k Properties): You buy two properties in developing areas. They grow at a slightly more modest 6% per year. After 10 years, the combined value is around $1.79 million.

On the surface, the single property looks like the winner for growth. But when you factor in the positive cash flow from Scenario B, plus the potential land tax savings, the net wealth position often looks very different.

Which Approach Fits You?

Deciding between quality and quantity requires looking at your personal constraints.

Consider the "Two Property" strategy if:

• You need cash flow to help service the loans

• You want to minimise risk by spreading assets across different states

• You are close to your borrowing limit and cannot afford high monthly holding costs

Consider the "One Big Property" strategy if:

• You have a high disposable income and can easily cover negative gearing costs

• You prefer a "set and forget" asset with less administrative work

• You want to own a prime asset that you might eventually move into or pass down

Making the Final Call

Ultimately, the best property is the one that performs. A single dud investment is worse than two average ones, and two terrible investments are worse than one good one.

The goal isn't just to buy "more" or "expensive" real estate. It is to buy the right asset that moves you closer to financial freedom.

Keen to understand how this applies to your situation? We’ll help you break it down and plan the next step.

Disclaimer:

The information in this article is general in nature and does not take into account your personal financial, legal, or tax circumstances. Property structures, tax regulations, and superannuation rules may change over time. You should seek advice from a qualified professional and refer to the latest ATO and government guidelines before making any investment or structuring decisions.