Another common property mistake is that people buy “too big”.
What do I mean by that? People buy at the limit of their affordability. They buy one property of R900 000 instead of 2 properties of R450 000. For some reason, many people think the higher the rental on one property, the better. But that is not necessarily so.
First, in this scenario, a higher rent normally also means a higher bond. And a higher bond might also mean that you can only afford that one property and it may be a long time before you can buy another. So expanding your portfolio becomes difficult and slow. Many people lose heart and give up.
Secondly, in line with what we have said above, there is bigger risk in one property than in two, and in two than in three. If you only have one property, and that property is vacant, then 100% of your portfolio is vacant. You have no income. And we are trying to create multiple streams of income. And financial freedom is our ultimate goal. You cannot be free if you depend on 1 tenant for 100% of your income!
Thirdly, if you only have one property with a big bond, the repayment on that bond is quite high. If that property is vacant for a month or two, then you must be able to afford the full bond repayment without the benefit of a rental income. That could put a lot of strain on your finances.
Naturally, big or small in this sense is relative to your income and financial position. But a few smaller properties offer more safety than one big property.