Just wondering?
We have 2 ips. I'd say we have about $200K "at risk" money if
Our Yarraville warehouse was purchased in 2006 - only cost us $600K at the time and I don't think there is any real risk as I don't think commercial property has had any real bubbles. Id say if we sold today, we'd probably get $800K.
IMHO , I think you don't have a real appreciation of risk , in particular .....
You have everything at risk , if you are in a position where you are unable to meet your repayments or are unable to sell properties if you need to .
In the recent GFC , an acquaintance with a multi-million dollar portfolio of commercial properties was told by the bank ( despite having never missed a repayment, that with the decrease in property values , his LVR's were too high and can we please have $XXXX amount of money with in XXX days . some time later he was declared bankrupt .
How sell able are your properties in time of a crisis , in particular how sell able is your commercial property ?
In the time of a financial crisis , commercial properties can sit vacant for months or even years despite how " GOOD " they are and well located . In the aftermath of the GFC we bought two units in Mosman which we did quick reno's and rented within a week .We drive down military rd on a regular basis and there were a hell of a lot of vacant shops along that high profile strip . I didn't track which ones were vacant for how long , but I think some were vacant for maybe two years.
A commercial property is valued on yield . no yield , you may not have people fighting to buy it in a down turn.
The financial pages often tell the stories of commercial properties selling for considerably less than people have paid for them.
Your risk is no tenant , a mortgage you can't afford and a bank who want THEIR money .
So how much buffer do you have ? What income do you have ? what type of insurances do you have in terms of income , accident and Disability ? That is critical in determining your risk .
How old are you ? If things go pear shape , do you want a start again ?
There are several forumites I know who have been prepared to take " risks " in the last years because they are younger than I am and if things went pear shaped they could start again , but they have mitigated that risk by being very financially educated , watching their markets very closely and buying at times when the markets are moving . DaveM and Richard Feynman , Michael X spring to mind.
While non IP people would consider what they have done to be risky and that they are " lucky " , my opinion is that what they have done is considerably less risky that what the majority of the community do , who are only 1-2 pay checks ahead of missing payments .
For me , I believe that my only risk is a financial crisis bigger that the great depression or a WW3 which totally changes the fabric of our economy and society
I have a bullet proof Job . If I want to , I can do more hours and make more money .In the recession we had to have I worked with a Dr who was working 7 days a week , long hours to keep the wolves from his door .Not something I'd want to do , but it's an option . I have disability and income insurance . I have a buffer of several hundred thousand dollars . this is over different institutions . Worse case scenario I have parents who would be happy to help out in some unforeseen crisis . We have family we could move in with , as another last resort
We have a PPOR which we could rent out and we could more into one of our cheaper IP's if necessary to increase our income . We also have a weekend which I would also be more than happy to move into full time
We have multiple properties with considerable equity .I would expect to be able to sell some of those but there are multiple layers of safety nets to go through before .
Our current LVR is just over 50% .
My biggest risk management safety net is I watch the market and the forum closely and have a track record of buying and selling at the right time and while some people might consider this lucky , I don't .
I also have a track record of not making mistakes . There have several schemes / investment opportunities and structures promoted on the forum over the last 14 years which have resulted in forumites loosing money . We've done our due diligence on these and decided not to be involved . Being a football fan , I know a successful team is built around a solid defense , and that involves being careful . If that means missing out on opportunities so be it .
We've also sold down properties to pay for a development when I thougth the market was high . We could have got top up loans to borrow more but I felt that would have increased our risk at the time
One thing I've learnt on the forum is that there are always opportunities , but sometimes it's better to sit on the side lines and wait for better one's to come along.
So what is your real risk ?
Cliff