Does doubling up property strategy works?

Doubling up - an interesting property investment strategy I’ve seen mentioned in a few different places. The doubling up idea means buying twice as many properties as you want to end up with, then gradually selling off half.

The doubling up idea works like this…

Let’s imagine you want to end up owning five properties – mortgage free – for your retirement. Instead of starting by buying five and trying to pay the mortgages down, with this doubling up model you’d buy 10 properties and let the mortgages run.

Assuming each apartment cost RM100,000, and you used 70% loan-to-value mortgages. That means you’ll own a portfolio worth RM1 million, with cash input of RM300,000 and debt of RM700,000.

Fast-forward 10 years, and the value of your portfolio has increased by 50% so each house is worth RM150,000. You can now gradually sell off five of them, for a total sale price of RM750,000 – of which RM350,000 pays off the mortgages on those five houses, and RM450,000 goes into your pocket.

You can then use the remaining RM450,000 to pay off all the debt on the remaining five apartments. Bravo– you now own five apartments for your retirement, free and clear.

Double the growth

The magic here is benefiting from capital growth across twice as many properties. If you’d only bought five properties to start with, your equity gain would have been RM250,000 rather than RM500,000 – not enough to pay off  all your debts.

Of course, it only works if the projected capital growth actually happens. But a 50% nominal increase over 10 years isn’t that wild a prediction – and you can always just extend the timescale.

The downside is higher risk. If values do go the other way, you’re highly leveraged and could lose a substantial chunk of your investment. And more leverage means reduced cash flow and increased vulnerability to interest rates that rise unexpectedly quickly.

Can this strategy be improved?

Despite the risk, I like the idea of this strategy – but partially, I think rather than planning to end up owning five properties (which doesn’t really mean anything in itself), what about how much income those properties will generate for me to live off?

In other words, my portfolio is making a certain amount of income now – but what would that income be, if the mortgages were completely paid off?

I like tracking this because income now is nice, but it’s future income that I’m more concerned with.

Does it work for all?

This won’t work for everyone. Some people prefer to take a cashflow hit now by taking out repayment mortgages and knowing they’ll definitely be debt-free in (say) 25 years.

Others take the opposite approach and have a strategy that involves letting their mortgages run and run for decades to come, without being overly concerned by paying them off by the time they retire.

Like with most things, there’s no right or wrong – just personal preference.