Reply: 1.1.1.1.1.1.1.1.1
From: Duncan M
Sim, a few more figures:
At around 9%, we're still break even.
At around 17% we're way out of pocket, $50-$60K pa.
But, our growth, even at a modest percentage outstrips the potential loss.
If I had to lose $120K equity over a 2 year period I would be very
dissappointed but not really upset as I know I'm going to have the
properties when the Federal Government releases the Second Home Owners Grant
and rates fall back to 6-8% and then I'll really benefit.
>I'm more interested in WHY they don't scare you Dunc ? What is it about
your numbers (or your strategies for dealing with the high rates) that let
you feel >confident that you can cover it.
1. High disposable income,
2. A wife who doesnt currently work, but could get a job tomorrow if we
needed her to
3. Family started, no more kids on the way (I can feel the snip coming
already, gulp!)
4. Cash reserves totalling around 3-4 months of expenses
5. Multiple career options if IT went REALLY bad
6. An LVR thats never over 80%.
7. Loads of serviceability
8. Income Protection Insurance
9. Critical Illness Insurance
10. Emergency LOC set aside.
>>can capitalize some interest
>>as necessary..
>Great strategy... so you have a mechanism in place now to be able to deal
with this ?
>Or a plan to easily put such a mechanism in place ? What is your actual
I have a LOC set aside (Pt 10 above) that could cover around 10-12months of
interest payments.. It's a waste of equity, but I sleep better at night.
Then I'd scrape Credit Cards or whatever credit I could lay my hands on to
both hold onto and acquire more property.
>So what are the hooks and crooks that will let you hang on to the
properties ?
A lot of the above. And a few more ideas if we had sustained 17%+ rates:
1. Turn existing portfolio into a Lease/Option portfolio to increase returns
(diffcult in a high rate market)
2. Profit share with tenants to guarantee long leases at a better than
average rent
3. Work two jobs
4. Write more software.
5. Move out of our PPOR into one of our units and rent out our PPOR
6. Become a more active investor, trade etc..
Rates are the highest risk, thats why the Brad Sugars idea of a Wealth Wheel
is so attractive not only for serviceability but for rate risk management,
4-5 positive geared properties and 1 potential growth star.
The risk is the price of success, those of who are prepared to risk
ourselves to a rate hike, but with a plan and a recognition that the risk is
real (but can be managed) are the ones who are going to own the most
property when the next sustained period of great growth begins (or continues
)
In Big Kev's immortal words "I'm Excited!".. Imagine what will happen if we
DONT see rates climb and we have the next 10yrs at <10% and have at least
one more great growth period??
Long Live Excel...
Duncan.
-----Original Message-----
From: propertyforum Listmanager
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Subject: RE: Investing in Real Estate on a Budget
From: "Sim' Hampel" <
[email protected]>
On 4/11/02 5:03:29 PM, Duncan M wrote:
>Sim,
>
>Interesting thoughts..
>
>I did a quick spreadsheet,
>taking my portfolio's current
>rental income and
>inflating it each year by
>3.5%, the bottom line was,
>high interest rates in
>a few years time dont scare me
>
I'm more interested in WHY they don't scare you Dunc ? What is it about your
numbers (or your strategies for dealing with the high rates) that let you
feel confident that you can cover it.
I don't think many people truely understand the exposure they have to
interest rates... basic lack of understanding of the nature of finance and
such. I think if some people did these kinds of sums you are doing Dunc,
they would be rather scared at the results.
>The interesting part of the
>exercise was playing with a
>projection of the
>rates over the next 10 yrs,
>even with a couple of years of
>very high rates
>(at 17%!) my returns aren't
>hugely affected over a 10yr
>period, provided I
>can capitalize some interest
>as necessary..
Great strategy... so you have a mechanism in place now to be able to deal
with this ? Or a plan to easily put such a mechanism in place ? What is your
actual safety mechanism - how will it work ? WILL it work at the time you
need it ? How confident are you you can survive a 5 year period of 15%+
rates ? (very confident by the sounds of it) ?
This is great Dunc... it's obvious you have spent some time thinking about
how you will deal with such situations... so I would suggest that you more
than many people would have a fighting chance of surviving it, even with the
high levels of IP debt you carry.
>Great little
>exercise to do, add
>in a few columns for new
>acquisitions to maintain an
>LVR of 80% to really
>get yourself fired up..
Having the confidence to be able to deal with these adverse conditions (as
opposed to simply sticking your head in the sand and hoping for the best
like most people) can really help drive you forward !
>I guess my thoughts are, by
>hook or by crook, just hang on
>to the properties
>and grab as many as I can
>along the way
So what are the hooks and crooks that will let you hang on to the properties
?
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