My husband and I currently own three IPs altogether valued at 1.28 million also a PPR valued at $800k with about $35K owing on it. The IPs cost us approx $35K per year to hold onto. (all properties are in SE QLD and bought in the last 18 mths). We service this debt through a line of credit which currently has a facility of $190K which we may be able to increase to about $220K after we refinance. Based on this we figure we can keep things going for about 5 to 6 years without having to refinance. Our biggest concern is that property prices are falling and we don't know when they are going to come back up. Is 5 years enough buffer. We don't think so and have put one of the properties on the market so that if we can sell it and bring our holding costs down we will more likely be able to ride out a long slump. We will be selling the property at a loss but we figure taking a hit of about $15K now might be better than the market falling further and having to sell at an even lower price. I would be interested to know what people's thoughts are on this and for those using a similar holding strategy with LOCs how many years do you have in your buffer?
How long will your buffer last?
- Thread starter Milly
- Start date
i would imagine that 5 years is a solid buffer - maybe even overkill.
that's an awful long time in reality - the media pump you so full of crap ,so often, that you think these "issues" we've been having have been around since 1901.
sydney has been soft since 2004 - it's starting to show signs of a floor under the market now - in 2008 - with a predicted return to average CG in 2009. there's 5 years - but 5 years from NOW will be 2013.
brisbane and perth have been soft since 2006. that was 2 years ago with signs already showing of a floor with investors returning slowly.
i can't call melbourne/adelaide/canberra/hobart/darwin, but i imagine them to be the same story - some say Adelaide is the only place with current growth at present.
while i have no buffer because i sold up my last IP in Perth on 07 (luck, not foreknowledge) i do understand your concerns. it wasn't 3 months ago i was worried about having to fix my IR because imported inflation looked to keep hiking up those inflation figures, and now there's talk of them dropping a half pt by Dec and back to 6.25-6.50% by end of 09.
steer clear of the media hype and try to read between the lines - but then, you're an investor so i wouldn't expect any less of you.
that's an awful long time in reality - the media pump you so full of crap ,so often, that you think these "issues" we've been having have been around since 1901.
sydney has been soft since 2004 - it's starting to show signs of a floor under the market now - in 2008 - with a predicted return to average CG in 2009. there's 5 years - but 5 years from NOW will be 2013.
brisbane and perth have been soft since 2006. that was 2 years ago with signs already showing of a floor with investors returning slowly.
i can't call melbourne/adelaide/canberra/hobart/darwin, but i imagine them to be the same story - some say Adelaide is the only place with current growth at present.
while i have no buffer because i sold up my last IP in Perth on 07 (luck, not foreknowledge) i do understand your concerns. it wasn't 3 months ago i was worried about having to fix my IR because imported inflation looked to keep hiking up those inflation figures, and now there's talk of them dropping a half pt by Dec and back to 6.25-6.50% by end of 09.
steer clear of the media hype and try to read between the lines - but then, you're an investor so i wouldn't expect any less of you.
Hi Milly,
BC has echoed some of my thoughts. If I may also ask, have you factored in that rents should continue to grow in the short to medium term in SEQ, to assist with your holding costs?
If not, your buffer may have a longer shelf life than you envisage.
If you have accounted for this, and are dead-set on selling for your own reasons and of course that would include SANF, then I would sell the worst of the properties as far as location, rental return and growth prospects.
BC has echoed some of my thoughts. If I may also ask, have you factored in that rents should continue to grow in the short to medium term in SEQ, to assist with your holding costs?
If not, your buffer may have a longer shelf life than you envisage.
If you have accounted for this, and are dead-set on selling for your own reasons and of course that would include SANF, then I would sell the worst of the properties as far as location, rental return and growth prospects.
Hi Milly,
I ran the same question over my portfolio recently and was pleasantly surprised with the outcome. I have $1.7M in property in total across my PPOR and IP. I have $1M in debt all of which is deductible.
I did my budget and noticed that if I cut discretionary spend back then I'm balanced with income and expenses. Of course, my wife likes the odd new dress, and I like the odd sailing course so we are running a little in the red at the moment. We've consumed cash reserves to the tune of about $10K over the last 6 months so at a rate of $20K pa if sustained. I have $160K in cash reserves so that's 8 years of spending beyond my means that I can sustain this cash flow. Of course, that doesn't allow for increased personal incomes, increased rental incomes, decreased mortgage repayments. All of which will help the cash flow position. Oh, and my wife is thinking about going back into part time work too. If she does that then we'll have more incoming than outgoing and can start reducing debt too.
Michael
PS The above didn't allow for the s.221D WHTV form either and the fact that I get a nice $30K odd tax return. So, in effect I'm actually CF+ after tax returns already (but don't tell my wife )...
I ran the same question over my portfolio recently and was pleasantly surprised with the outcome. I have $1.7M in property in total across my PPOR and IP. I have $1M in debt all of which is deductible.
I did my budget and noticed that if I cut discretionary spend back then I'm balanced with income and expenses. Of course, my wife likes the odd new dress, and I like the odd sailing course so we are running a little in the red at the moment. We've consumed cash reserves to the tune of about $10K over the last 6 months so at a rate of $20K pa if sustained. I have $160K in cash reserves so that's 8 years of spending beyond my means that I can sustain this cash flow. Of course, that doesn't allow for increased personal incomes, increased rental incomes, decreased mortgage repayments. All of which will help the cash flow position. Oh, and my wife is thinking about going back into part time work too. If she does that then we'll have more incoming than outgoing and can start reducing debt too.
Michael
PS The above didn't allow for the s.221D WHTV form either and the fact that I get a nice $30K odd tax return. So, in effect I'm actually CF+ after tax returns already (but don't tell my wife
)...
I think that 5 years is a solid period of time. It gives at worse time to react to changing circumstances.
Unsure how you have reached your numbers so tax deductions, increasing rents and and falling interest rates may better the situation.
Have you also looked at the possability of value adding or more creative letting to increase yields?
Unsure how you have reached your numbers so tax deductions, increasing rents and and falling interest rates may better the situation.
Have you also looked at the possability of value adding or more creative letting to increase yields?
It would come down to several items one is the most important"LOCATION",pure and simple i've had some real dogs
in small country towns one hour from Brisbane that over time went nowhere,and i have also held for over 15 years some in Brisbane
that have done 13%plus c-g year in year out,just depends on the location,land area,and how high the BBC will let me build..
One Word "Location"..good luck willair..
Hiya
Id also suggest 5 years is a good long time BUT
What I reckon isnt relevant is what other people feel.
Whats important is what YOU Feel.
Perhaps increase your buffer by revaluing or looking at an increased LVR ?
ta
rolf
Id also suggest 5 years is a good long time BUT
What I reckon isnt relevant is what other people feel.
Whats important is what YOU Feel.
Perhaps increase your buffer by revaluing or looking at an increased LVR ?
ta
rolf
I currently control 2x IP's both bought within the last 15 months and can afford to fund them for two years with my current savings,
i've got a portfolio worth around $2.5mil and a buffer of only 10 months. personally i'd like it to be longer, but if it were any longer i'd be spending my buffer on deposits for more ips!!
i think 5 years is overkill, especially since we are towards the bottom (if not "at" the bottom) of the cycle, rents are going up and interest rates are coming down.
but - at the end of the day - it is up to you.
i think 5 years is overkill, especially since we are towards the bottom (if not "at" the bottom) of the cycle, rents are going up and interest rates are coming down.
but - at the end of the day - it is up to you.
All sounds mighty similar to me... especially the part about buying more if my buffer were longer
I'd be buying not selling if it was 5 years' worth.Buffer ran out the other day. Oh boy! Better start begging the Mrs for a loan or stop being greedy guts and start selling some IPs to live a little.
We have enough for 1 1/2 years of interest payments not taking into account of rent. If we add the current rent and no taking into account any tax returns just over 4 years.
But we can comfortably cover this amount out of our wages, i think the amount is $280 for me and $400 for my mum a week for the 3 so not really stretch, can hold as long as it takes.
But we can comfortably cover this amount out of our wages, i think the amount is $280 for me and $400 for my mum a week for the 3 so not really stretch, can hold as long as it takes.
I have about 2.5 years and am perfectly happy with that.
Our loans are fixed for five years, but I haven't factored in any increase in rent, so that's probably fairly conservative.
As previously said, if I had more in there than that I'll start looking for more IP's.
Our loans are fixed for five years, but I haven't factored in any increase in rent, so that's probably fairly conservative.
As previously said, if I had more in there than that I'll start looking for more IP's.
Maybe I'm new at this but I'm missing some information here.
Do you plan to hold onto the properties long term or plan to sell them off in the next 10 years?
Is the size of your buffer currently increasing, decreasing or remaining stable?
If the size of your buffer is remaining stable, i.e. wages balance out what the proprties are costing you, and you plan to hold long term, I dont see the problem. We are in a similar situation to you with regard to our PPOR, my main goal at the moment is paying off that last 30k from it so I can remove that monthly payment from the debt servicing equation and afford more IP's.
Good luck.
Do you plan to hold onto the properties long term or plan to sell them off in the next 10 years?
Is the size of your buffer currently increasing, decreasing or remaining stable?
If the size of your buffer is remaining stable, i.e. wages balance out what the proprties are costing you, and you plan to hold long term, I dont see the problem. We are in a similar situation to you with regard to our PPOR, my main goal at the moment is paying off that last 30k from it so I can remove that monthly payment from the debt servicing equation and afford more IP's.
Good luck.
I have 3 years of a buffer including rent and tax refunds for my 1.3m portfolio, that doesn't take into any increases in rent. Another 18% increase in rents and I'll be neutral so I'm confident I can manage for the next three years or more.
As others have said if I had a larger buffer I would be buying more tomorrow.
Mark
As others have said if I had a larger buffer I would be buying more tomorrow.
Mark