Pod Insights The Property Academy Podcast 5 Paid-Off Rentals vs. 15 with Mortgages: The Math Will Change How You Invest About this episode One investor owns 15 rentals with mortgages. The other owns 5, mortgage-free. So, who's actually better off and by how much?
In this episode, Ed and Andrew run the numbers on both, and the result surprises most people.
You'll learn:
Why 15 mortgaged rentals can barely pay any cashflowWhy the "worse" properties can produce around 14x more free cashWhen to leverage to build wealth, and when to pay down for incomeLeverage builds wealth, but it doesn't pay you. Knowing when to switch is the whole retirement plan.
Let us know your thoughts by leaving us a voice message on the Property Academy Hotline https://www.speakpipe.com/PropertyAcademy
For more from Opes Partners:
Sign up for the weekly Private Property newsletter https://www.opespartners.co.nz/newsletter-sign-upInstagram https://www.instagram.com/opes_partners/TikTok https://www.tiktok.com/@opespartners
Transcript 0:08 Speaker 00 Hello and welcome along to the Property Academy Podcast by Obers Partners. I'm your host, Stephen Knight.
0:12 Speaker 01 And I'm Andrew Nicoll.
0:13 Speaker 00 And this is the show that helps Kiwis go from zero to five investment properties. So you could be financially free and stick around for the next 15 minutes because you're going to 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
0:57 Speaker 00 off? I've run 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?
1:24 Speaker 01 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 and a half 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, and mortgages, as we've
2:02 Speaker 01 outlined, that works out to be $27,000 a year, about $34 per property per week before tax.
2:10 Speaker 00 And what are you taking from that?
2:12 Speaker 01 Well, I think lots of people 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.
2:31 Speaker 00 And 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, 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
3:09 Speaker 00 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, Andrew, but you'd need quite an enormous income to be able to afford 78 properties. And if you think about 78 properties, each with a $600,000 mortgage, then we're talking about a massive $46.8 million worth of debt to make that happen.
3:41 Speaker 01 Good luck getting that.
3:42 Speaker 00 So let's look at another scenario. Did I call her Sue or Susan?
3:46 Speaker 01 Susan, I think.
3:47 Speaker 00 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 going to 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. Yield properties, on the other hand, they don't tend to go up in value as quickly. So for example, it might be a dual key apartment,
4:29 Speaker 00 so an apartment where two families can live in, but the yield is typically stronger. And in our book Wealth Plan, we talk about aiming for 6% plus. So this would be a classic yield property at 6.1% rental yield. Now, the revenue on that's about 35 grand, about $10,000 of cost. Of course, if you're earning less in rent, you've got less property management to pay. But because there's no mortgage, the cash flow on this property, even though it's lower yielding, is $25,000 per year. So 25K of cash flow before tax on this property that Susan owns, or Suey owns, versus Haza, he's earning 1,800 bucks a year off his property
5:13 Speaker 00 that's mortgaged up to the eyeballs. Now, if she's got five of them, five rental properties all paid off, then she's earning 125 grand a year. And the reason I wanted to point this out for you is that the property with the lower yield, the ones that Susan owns in this case, is making 14 times more free cash flow than Harry's properties that have massive mortgages on them.
5:40 Speaker 01 And that's because of the first scenario, of that 42,500 coming in for rent, 30K goes out to the mortgage. So that's 71 cents out of every dollar of rent goes from Harry's hands to the bank. And we're not saying that you shouldn't use mortgages. It's one of the main benefits of, of investing in property is the fact that you can use some of the bank's money to actually make this thing come together. But I think the main thing to think about here is lots of people think that if they buy a rental property, like a high yielding rental property, that means they're going to have all this extra income and they're going to be able to have passive income sooner and quit their job. It kind of isn't the case if you're borrowing money to do it.
6:20 Speaker 00 But if you were to start with a big cash deposit, there could be some rental income coming to you, but you've got to put some of the cash in first. And that's just where I often say to people, there's no real free lunch in any sort of investment or business, right? Like if you don't have cash to buy a rental property and you're borrowing all of the money, typically there isn't going to be much positive cash flow, at least at the start. Most of the time, you're going to be topping up that property. In fact, when I looked at data out of Velocity, they estimate that something like 99% of properties in Auckland, if you bought them as rental properties, the rental income wouldn't cover the mortgage.
7:02 Speaker 00 And so you would need to top up the property to cover those extra costs. Now, that's just the reality of investing in property. But similarly, I can't just go buy shares for free or units in a managed fund. I'd have to save up the money to go ahead and buy them. So I'd have to, I'd have to create the money to go and purchase those. So if you're going to go and borrow lots of money to buy an investment property, typically that does come with a top up. But the way that I think about it is if you're buying properties with mortgages, that is property being more of a wealth builder for you because you get the mortgage magnifier effect. Remember, if you put a $100,000 deposit into a $500,000
7:40 Speaker 00 property and that property goes up by just 5%, you made 25 grand. Now, that is a 25% return on the deposit that you put in. So the market only went up by 5%, but because you put in a fifth of the money, you got five times the market return. So five times five is the 25% return. Now, if you're buying property with low or no mortgage at all, that's where property starts to become more of a yield or cash flow type investment. Because property values typically don't go up quite as fast as shares. It might be
8:22 Speaker 00 five or 6% for property versus eight, nine, 10% for shares. But then you'd have more of that consistent positive cash flow because more of the money starts flowing to you as opposed to the bank. But do you reckon, is this comparison actually fair? Because the way we've run the numbers, these people don't actually have the same amount of money, right?
8:41 Speaker 01 No. So Harry with his 15 properties, they're 100% mortgage. So the 600K properties times 15 means he's got $9 million in assets, but because he's got the same amount of debt, he's got no equity. Whereas Susan, or Suzie or Susan, whatever her name is.
8:58 Speaker 00 No, you're not that friendly with her, Andrew. I do, I get to call her Suzie.
9:01 Speaker 01 No, I don't. I like, I only like people that use leverage. So she's mortgage free. So she's got $3 million worth of equity. So there is a big gap between the actual amount of wealth that they've got at the moment.
9:13 Speaker 00 Now, if we were to make it the same, so let's say all of the properties rent for 700 bucks a week, they've all got the same amount of $3 million of equity. So we all put it side by side. Even then, Susan's annual cash flow is still 125 grand a year. So her five mortgage free properties, 125K per year. Now, if her properties grow though at 5% per year, well, 5% of her $3 million portfolio is 150 grand. So in a typical year, it might be 125K worth of cash flow, 150K worth of capital growth. Now, if we look at Harry with his 15 properties, now even if he's got a real high yielding property,
9:55 Speaker 00 6.1%, same as Susan now, and we run them on exactly the same numbers, each property of his is actually costing him 100 bucks a week, five grand per year. So his cash flow across his 15 properties is going to be negative 75 grand a year. This is why a lot of people don't buy 15 properties all leveraged up. But if we look at 5% growth on his investment properties, all of them, that's 450K per year in terms of the capital growth. So if you look at who's better off, with his 15 properties, Harry would be making a net 375 grand per year compared to 275 grand per year for Susan, but more of hers comes from
10:39 Speaker 00 cash flow, more of Harry's with his 15 leveraged properties, 15 properties with bigger mortgages. His wealth is primarily being built by the houses going up in value. And so that is kind of the choice. That is the difference behind them, right? So who should be doing what, Andrew?
10:56 Speaker 01 So if you're building your wealth and you're happy with the risk, you take out more debt. And so you use leverage to supercharge that growth. But if you're finishing, if you're crossing the finish line and you're wanting to live on your portfolio, you need to have that debt paid off. So that's when you might sell some properties and pay off some of the others. Because the switch at this stage is you wanting to turn that money into a passive income or something you can live off. But I think people often think that they can get the best of both worlds, but it doesn't really work like that. If you're wanting to build your wealth, you're probably not going to have a passive income coming from that in the meantime, because you're probably going to take on a whole lot of debt.
11:34 Speaker 00 Well, it's a bit like if you want to lose weight, you can't be stuffing your face with cake, right? You might want both things, but you've got to choose one of them. You either make the decision to stuff your face with cake and have a wonderful life and you'll be really, really happy.
11:45 Speaker 01 Was this why you skipped dessert the other night?
11:48 Speaker 00 Well, yeah, but I stuffed my face with cake last night. I had friends over. Do you know what? We bought this cake from this carrot cake. You'd love a carrot cake.
11:58 Speaker 01 I love carrot cake.
11:58 Speaker 00 So good.
11:59 Speaker 01 It's healthy, carrots.
12:01 Speaker 00 Oh, and there were, there were, there were nuts and sunflower seeds and little freeze-ribed raspberries. We bought it, we didn't make it. Anyway, it wasn't particularly big, but anyway, the four of us ate the whole thing.
12:11 Speaker 01 Whole cake?
12:12 Speaker 00 Except for this minuscule little slice left because nobody wanted to have the last bit. And all pretend, oh, well, if we don't all have the last bit, then we didn't quite eat a quarter of it, did we? But we can't stuff our face with cake and also be skinny android. It's the same with property investing. You typically can't have really, really high growth and high cash flow. We've got to make a choice. Now, if we just bring it back though, to how many properties do you need to quit work for good? Here's a way I sometimes like to think about it. If you have a house like Susan's, 600K property, it's a high yielding property, 6% yield. That's going to drop out about $25,000 a year pre-tax. Of course, you'll run your numbers, but by using my spreadsheet, about 25K a year drops out.
12:57 Speaker 00 So all you do then is say, well, how much income do you need pre-tax to live your life? If you're earning $100,000 per year, well, if you had four $600,000 high yielding houses fully paid off, which is about $2.4 million, that'd drop out about $100,000 of pre-tax income per year. Now, obviously that's a lot of wealth, but that's the reason why we've got to do it. Build our wealth slowly over time so we can get into that position in the future. And over the last 15 minutes, you've learned five paid off rentals versus 15 with mortgages, what makes more money, the high yielding property that earns 14 times less than a lower yielding property, and how many properties you might need to quit your job for good and just live off the rent.
13:39 Speaker 00 Right, let's wrap it up there, but please don't forget to rate, review and subscribe to the podcast. Really does help us get the message out to more people.
13:53 Speaker 00 Thanks for listening to the Property Academy Podcast. I'm your host, Stephen Knight.
13:56 Speaker 01 And I'm your Nickel.
13:56 Speaker 00 We're going to be back here tomorrow with even more daily strategies, tactics and insights to help you get the most out of the new selling property market. Until next time.
Next NZ's 6 Biggest Infrastructure Projects – What They Do To House Prices Page updated November 14, 2026 · transcript and summary are machine-generated
