How much is your debt level?

[D.T.]

Agreed.

We have $5M+ in loans and about a $100K buffer.

5m x 7% = 350k pa = 30k a month. Therefore 3 months buffer, in the event that everything went vacant and you & partner both lost jobs.

I prefer to think in terms of X month buffer rather than $X. If the same duration of buffer can be maintained throughout the journey (or perhaps increasing in line with the debt), that's ideal, right?

 

[weg]

d2k, that's how I'd work it out too - how long would it last, rather than the amount set aside.

I would also avoid a 'combined' high LVR with negative gearing and very high debt, in anything but a rising market.

In a worse case scenario you would be in negative equity territory in no time, have even more debt, and a rapidly decreasing buffer.

That's one step from disaster in my book.

 

[matto_]

I like the train of thought around months of buffer.

As far as no debt goes (depending on your stage in the investing cycle), wouldn't this be the ultra conservative path? Ie not using any OPM.

 

[BayView]

Geez...judging from the response so far, am i the only one who feels i should pump up my debt levels?

Those debts look huge

I remember once having a debt of only $70k on my first PPoR, but there was a time during this period where my then girlfriend and I were so broke that we couldn't literally afford to get any food for a few days.

We now have about 20 times that amount of debt.

The debt level is not the concern; it is the LVR and servicability.

 

[travelbug]

If I told friends and family how much my wife and I owe, we'd be carted off to the loony bin.

Haha. Same for us.

18 years ago I was worried when we borrowed $100K to buy our second PPOR (and that was 40% LVR).
Our first home was $55K so we borrowed more than double the first loan.

These days we have big loans but are CF neutral so it doesn't hurt.

 

[virgo]

Big Loans

Haha. Same for us.

18 years ago I was worried when we borrowed $100K to buy our second PPOR (and that was 40% LVR).
Our first home was $55K so we borrowed more than double the first loan.

These days we have big loans but are CF neutral so it doesn't hurt.

Hiya

Just curious whether it is CF neutral BEFORE or AFTER tax....as it is, shouldn't one be wary of going into almost retirement age with big loans or is that not a factor to be considered at all?

(sorry if it comes across as nosy...just trying to learn for my own situation in future!)

 

[HotRod]

5m x 7% = 350k pa = 30k a month. Therefore 3 months buffer, in the event that everything went vacant and you & partner both lost jobs.

I prefer to think in terms of X month buffer rather than $X. If the same duration of buffer can be maintained throughout the journey (or perhaps increasing in line with the debt), that's ideal, right?

If you begin to talk in terms of buffers for armageddon type scenarios, I've probably got a 36 month one with redraw and cash with a current LVR in the mid 60's and the ability to go to 80.

In all my time in PI the longest a property has remained vacant would have to be 3 weeks tops. But then I have the others in my portfolio that are fully tenanted.

But seriously, for all my properties to be vacant for 36 months, all my tenants would have dissapear in the rapture, and the odds of that heppening are less than me winning $70M in lotto next week.

In any event, my portfolio will be paying me a retirement income for the rest of my life.

All said and done, I'm happy with the risk-reward and have a frim exit strategy should things really go belly up.

 

[travelbug]

Hiya

Just curious whether it is CF neutral BEFORE or AFTER tax....as it is, shouldn't one be wary of going into almost retirement age with big loans or is that not a factor to be considered at all?

(sorry if it comes across as nosy...just trying to learn for my own situation in future!)

We are CF positive after tax. I could retire now as we don't need my wage. We spend it traveling. Or we could both go part time without any IP's. Our plan is to downgrade our PPOR in the next 2 years and sell off the most expensive IP. This will knock at least $500K off our mortgages and result in enough CF for me to retire. But I don't want to retire. I want to work part time for at least the next 5 years (I love my job).

As we love reno's we are also considering doing at least one buy/reno/sell a year (that's a full time wage right there).

 

[ozmale42]

5m x 7% = 350k pa = 30k a month. Therefore 3 months buffer, in the event that everything went vacant and you & partner both lost jobs.

I prefer to think in terms of X month buffer rather than $X. If the same duration of buffer can be maintained throughout the journey (or perhaps increasing in line with the debt), that's ideal, right?

And thats just to cover interest. What about food and other living expenses. If you lost your jobs you'd need some of that buffer to cover those costs too wouldn't you?

 

[HotRod]

And thats just to cover interest. What about food and other living expenses. If you lost your jobs you'd need some of that buffer to cover those costs too wouldn't you?

Not if those properties put $8K into your pocket each month after tax.

But in people's minds, what would need to happen for all my tenants to quit and us lose our jobs?

That is end of the world stuff.

 

[Aaron_C]

Obviously someone in HotRod's position with that kind of debt level has a contingency plan for these kind of situations. You don't get into a position of $5m+ debt and not be experienced with what happened in 1980s/1990s recession and have some extra cash in place for that.

 

[ozmale42]

Not if those properties put $8K into your pocket each month after tax.

But in people's minds, what would need to happen for all my tenants to quit and us lose our jobs?

That is end of the world stuff.

His example was if "everything went vacant" and no job, so yeah , it is pretty end of world stuff....If you're not working you've got no income from which to deduct any outgoings either.

 

[younguns]

We keep saying we would like to have 3 months wages put aside as a buffer. We haven't had much of a buffer for a while now though (PPOR renovation taking over!). I can't wait to finish the reno, refinance and get our buffer back It is inspiring to see how many people have portfolios that look after themselves and better yet live off their portfolios. We are a long way off but it gives us a goal to work towards

 

[geoffw]

A "sort of" average of $2 mil. I could never convince myself to commit so heavily into a single asset class.

I plead not guilty.

Two major asset classes for my debt. One of them still in the process of selling up.

Around 60% LVR before we sell the businesses.

 

[boomtown]

I nearly got burnt in the GFC Not my fault but had to support other family members. So i learnt my lesson that even if your own finances are in order you may be forced to bail out family.

Current buffer is two years plus. This will probably temporarily degrade to six months after buying new PPOR but should build back up again. I won't allow it to fall below six months.

 

[barney8]

I'd happily have 5 million in debt if I had in excess of 500K per annum income to service it.(~10%)

Wouldn't want to be on the line...but I guess with the RBA in a cutting type of mood, then some relief is on the way.

Debt is great if it continues to provide enough income to pay for itself and then some. (Even better if your playing with someone elses money.)

 

[Dazz]

Debt is great if it continues to provide enough income to pay for itself and then some

That's the spirit Barney !!