Your spot on with this, and its what many D&G's forget. The market value of your investments may drop, but who really cares if your net cash flow is increasing.
Any One Else Out There?
- Thread starter GeeVee
- Start date
Your spot on with this, and its what many D&G's forget. The market value of your investments may drop, but who really cares if your net cash flow is increasing.
your market value can plummet all it wants - if you're not planning on leveraging against it or selling and crystallising your losses.
if you need to sell to meet a margin call or need to leverage against to buy another - then yes, falling market values are a problem.
if you need to sell to meet a margin call or need to leverage against to buy another - then yes, falling market values are a problem.
How are WBC and NAB working out for you?
My position in a loss at 12k now on paper. But no margin call yet.
I doubt I will be able to write another option till the new year as the share price is now too low to get a premium.
The good new is that I will recieve about $1500 in dividends from WBC!
I doubt I will be able to write another option till the new year as the share price is now too low to get a premium.
The good new is that I will recieve about $1500 in dividends from WBC!
"if you're not planning on leveraging against it or selling and crystallising your losses".
The key word in the above phrase is 'planning'. In crazy times the best laid PLANS go out the windowm. Sometime one HAS to sell for any number of reasons and that is why falling values are dangerous. Sometimes reducing debts is more important than crystalising losses.
Cheers
Rogue
The key word in the above phrase is 'planning'. In crazy times the best laid PLANS go out the windowm. Sometime one HAS to sell for any number of reasons and that is why falling values are dangerous. Sometimes reducing debts is more important than crystalising losses.
Cheers
Rogue
Totally agree.
It's nice when the asset is increasing in value, as it provides you with equity to acquire more (assets), but the cashflow is what keeps you alive, irrespective of the asset's value.
I'm sure many D&Gers do get this. Its called internal rate of return and if your capital value is going backward at say 8% per year and you're receiving 5% yield. You're in the hole 3% per year. Plus costs.
but that's not "cashflow" - that's irr - cashflow is physical cash flowing in (or out).
it's not paper flow or valuation flow or yield flow or capital flow.
but you know that!
Not sure where your question is leading but wouldn't it be both groups have over committed?? If they have no buffer then it's a concern and if they have run out of buffer then things will only get worse as they'll have to make up the difference some other way rather than just burning up the buffer.
What are you trying to work out?
They can be both, or either.
A buffer could be eroded through rising interest rates, longer periods without tenant, some other life even that eats up some cash - a blown up car, loss of job etc, or a combination of all the above.
They end up with too much month at the end of the money.
We always try to keep $50k as a buffer in the LOC for life events. It helps the SANF.
If you run your life as a business (and anyone into investing should) then well-run businesses always keep working capital in reserve for when things are tight.
This could be in the form of a LOC, or an offset account, cash in the Bank, and overdraft.
The tricky bit is not using it unless there is an emergency. Many people (and businesses) start dipping their fingers into the pot.
I would never use a buffer to buy shares; especially on a margin loan. That's asking to be reamed.
Not so much perverse as wrong....the more the economy falters the greater the risk of your tenant getting in strife.
A struggling economy is bad news for everyone and but particularly for the heavily leveraged.
No you are not, if your capital value is temporarily going down by 8% and your net cash flow after all expenses and interest costs is 5%, then you are fine so long as you are not planning on selling the assets.
One day the asset value will turn around, and in the mean time you have been receiving a 5%net cash yld.
However if you are operating on negative cash flow with assumed future growth (that has now become negative) to fund the short fall, then i totally agree with you and you are in a bloody big hole.
However if you are operating on negative cash flow with assumed future growth (that has now become negative) to fund the short fall, then i totally agree with you and you are in a bloody big hole.
Sounds like a lot of business owners that have been on the news in recent months.
Living on the fairytale income that hasn't happened.
But I'm alright Jack - I got my $40 mill golden parachute.
I thank you as well GeeVee for an honest thread which will actually help more people than you might realise.
Right now is a real wake up call for many investors........ to put it lightly.
I think also that everyone will take a hit it just comes down to where you sit on the cashflow ladder as to how big that hit may pan out to be.
I often like to refer to the backwards snowball effect in my cautious posts, I have been around long enough to have seen this happen before.
Especially so when you run your own business and that starts to slow as well, I think really that most people live a little beyond thier means in one way or another.
I am travelling ok right now but I sure would like to know how long business will be slow.
I have never believed the stock market was a safe place to invest and really was very sus of the way managed property trusts seemed to be luring people in, I just could not imagine how they could continue to profit the way they were promoted.
But the goal posts move constantly and before you know it I guess you are in up to your neck.
I am worth a lot less than I could have been with hindsight but then again I was always selling to make sure I had low debt on the properties I did keep... instead of leveraging my way into more debt as was the advise of others.
I would hate to think the position I might be in if I had kept those properties and couldn`t sell them even with the extra capitol gains, sure you can utilize equity but banks are now starting to tighten there guidelines for borrowing or extending loans.
Right now is a real wake up call for many investors........ to put it lightly.
I think also that everyone will take a hit it just comes down to where you sit on the cashflow ladder as to how big that hit may pan out to be.
I often like to refer to the backwards snowball effect in my cautious posts, I have been around long enough to have seen this happen before.
Especially so when you run your own business and that starts to slow as well, I think really that most people live a little beyond thier means in one way or another.
I am travelling ok right now but I sure would like to know how long business will be slow.
I have never believed the stock market was a safe place to invest and really was very sus of the way managed property trusts seemed to be luring people in, I just could not imagine how they could continue to profit the way they were promoted.
But the goal posts move constantly and before you know it I guess you are in up to your neck.
I am worth a lot less than I could have been with hindsight but then again I was always selling to make sure I had low debt on the properties I did keep... instead of leveraging my way into more debt as was the advise of others.
I would hate to think the position I might be in if I had kept those properties and couldn`t sell them even with the extra capitol gains, sure you can utilize equity but banks are now starting to tighten there guidelines for borrowing or extending loans.
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