5 Paid-Off Rentals vs. 15 with Mortgages: The Math Will Change How You Invest
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What is the premise of comparing 5 paid‑off rentals to 15 mortgaged rentals?
Hello and welcome along to the Property Academy Podcast by Obus Partners. I'm your host, Deb McKnight. And I'm Andrew Nicole. And this is the show that helps Kiwis go from zero to five investment properties so you can be financially free and stick around for the next 15 minutes because you're gonna learn five paid-off rentals versus 15 with mortgages. What makes more money? The high-yielding property that actually earns 14 times less than one that is lower yielding. And how many properties you might need to quit your job for good and just live off the rent. Now, if you imagine two investors for me, Harry and Susan, I've just made their names up. One of them owns 15 rentals with mortgages. That's Harry.
And Susan owns five rental properties, but they are all mortgage-free. Now, who is actually better off? I've rather A couple of scenarios for you. And in each one, I'm going to use the same details. So it's going to be a $600,000 property, which has the same cost, the same mortgage interest rate, all of that jazz. Now, Andrew, let's walk through scenario one. If we think about Harry with his 15 properties, which have lots and lots of mortgages, how much cash flow might he actually make? Yeah.
So let's say a property with a massive yield, say $850 a week coming in for rent. So on a $600K house, that's a that's a gross yield of 7.4%, well above the norm. So the income per year is 42.5 grand. Now remember, you've got your costs to come off that. So there's about $11,000 worth of running costs. So rates, insurance, property management, et cetera. And then the mortgage, that's going to be the biggest cost. For anyone with a mortgage, so that takes about $30,000. Cash flow after costs works out to be $1,790 per property. So if Harry's got 15 properties with high yields and mortgages, as we've outlined, that works out to be $27,000 a year, about $34 per property per week before tax. And what are you taking from that?
Well, I think lots of people think. think that if they go and buy a high yielding property, something that sounds quite good from a cash flow standpoint, and don't get me wrong, this one is, they forget that by the time you factor in a mortgage, if you're if you're using the bank's money rather than your money, the cash flow most of the time is going to be pretty lackluster. And then
The other thing I'd caution is that sometimes people think, well, if I just buy a couple of really high yielding properties, I'm going to be able to give up work for good. But even if you've got a really high-yielding property, if you're using the no cash needed method, you don't have your own deposit, you're borrowing it against the equity, the usable equity you've got in your house, most of the time the cash flow is not going to be that great, even if the Yield is really, really high. Now remember, the average household income in New Zealand is about $140,000 before tax. So if you were of the mindset that, okay, I don't have much deposit, but I'm just going to go and buy lots of high-yielding properties, you would need 78 of these properties to make the average household income in New Zealand.
Now, I don't know about you, Anne. Andrew, but you need quite an enormous income to be able to afford 78 properties. And if you think about 78 properties, each with a six hundred thousand dollar mortgage, then we're talking about a massive forty-six point eight million dollars worth of debt to make that happen. Good luck getting that. So let's look at another scenario. Did I call her Sue or Susan? Susan, I think.
How do Harry’s 15 mortgaged properties perform in cash‑flow calculations?
Well, I call her Sue now because we're buddies. We're five minutes into the episode. Now, she's got five properties without any mortgages. Now, this time, I'm gonna say that the properties aren't as high yielding. Let's say that she's investing in what I'd consider standard yield properties. So they're getting about 700 bucks a week or a 6.1% yield. Now remember. In property investment, we typically talk about growth properties and yield properties. Growth properties are ones that the cash flow might not be as strong, but they tend to go up in value faster.
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Chapters
4 chapters
1
What is the premise of comparing 5 paid‑off rentals to 15 mortgaged rentals?
0:08–3:47
2
How do Harry’s 15 mortgaged properties perform in cash‑flow calculations?
3:47–7:13
3
Why does a high‑yielding mortgaged property often produce little net cash?
7:13–12:05
4
How many high‑yielding rentals would you need to match the average NZ household income?
12:05–14:03
Speakers
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