Is it better return on investment to buy two small houses or one big house?

In terms of return on Investment, is it better to buy two houses or one?

Here is the scenario. You are getting ready to buy your first house and you are unsure if you should go “all in” on it or buy what you need and save for the next.
Option #1: Buy a $550K house and live there for a long time. Gain equity through improvements and appreciation.
Option #2: Buy a $350K house and in a year or two, as equity accumulates, use it to buy another house/freehold townhouse/semi. Rent that out for 10-15 years before we sell it.

Option #1 is to buy a house and live in it as it appreciates.
Option #2 is to leverage the first house to buy a second and become a landlord.
Which option will generate a better ROI?

I have never lost money on real estate. It always goes up, at least it has where I have bought it. In Alberta it has been going down this year, but Alberta is like that. Since the early 1990s, in KW the price of real estate has risen pretty consistently and recently it has risen rapidly. LINK

I’m not going to do any math for this one, but my feeling is if one house is good then two houses are better. I’m sure Henry will get better return on his investment if he buys two small houses rather than one large house. The buy an hold option for one large house is good and easy, but it does not have an income component to it, so it cannot generate as much return on investment just through appreciation as having two houses.

Also, at least currently, the most activity, including price appreciation and multiple offers bidding wars is at low to middle part of the market. Houses between $300-$400,000 are getting listed and sold lightening fast, where as the top end of the market is behaving much more traditionally, calmly. With the market moving so fast, with so many first time home buyers out shopping, with Kitchener Waterloo demographics becoming younger, I think in terms of straight appreciation, having two $300K houses is a better option than having one $600K house.