Navigating a Recession, advice?

[nhg]

Hi Everyone!

Something that’s been on my mind recently.

Now I’m not arguing there is or isn’t going to be a recession. However let’s assume there was one. What are some steps those who have undergone a previous cycle have undertaken to get through the troubling times.

My assumption has been, prices fall, rents stay the same though higher rent-defaults, interest come down, so all in all, not a bad time if you have property at a reasonable LVR and a steady non-rental income of some sort. Would this be a reasonable assumption?

What has your experience been during past recessions as such? Is there something you wish you could have done beforehand, or were you unable to take precautions till it all happened?

Hope you are all doing great!
NHG

 

[lizzie]

Have my equity sitting in an offset waiting to buy

 

[Aaron_C]

Just keep business income strong and hold. Recessions destroy those who cannot sustain their cashflow.

 

[VYBerlinaV8]

Pull yout belt in, conserve cash and try to lock in some low interest rates.

 

[The Fence]

3 very good and conclusive answers, all you need really.

 

[Rolf Latham]

LOCKNUT your equity without using LOCs

If the downturn is deep enough you may be able to score some nice bargainsIF you can find a lender to lend the funds : )

ta
rolf

 

[nhg]

LOCKNUT your equity without using LOCs

If the downturn is deep enough you may be able to score some nice bargainsIF you can find a lender to lend the funds : )

ta
rolf

Hi Rolf.

What is LockNut?

I have locked down 2 loans for 3 years (1 year in now) @5.34%
2 properties are at 20% LVR, 1 is at 10% LVR. I also have another $30k equity over that I haven't redrawn yet in the 1 unlocked property. More in the others.

Also with a JV partner I have access to $100k of their LOC. Would the LOC still be available during a recession?

 

[Graemsay]

Recessions are a national pastime in the UK these days. So speaking from bitter, personal experience...

1. There's a reasonable chance you'll be out of work for a good chunk of time, depending on what sector you're in. Having access to a decent stash of savings (six months living expenses is the guideline) is a good idea, as well as the ability to downsize your costs where necessary.
2. I'd expect property prices to fall, but that's not to say it's going to happen. (See London for evidence of a contrary market. )
3. Rents are likely to fall too. It's an extremely elastic market, and tenants will find a way of reducing their costs through sharing, moving in with relatives, or similar if incomes are tight.
4. Wage growth will be slow, possibly falling in some cases.
5. The RBA will cut interest rates, though at 2.75% there's not a lot of scope there.
6. The government will come up with some way of wasting taxpayers' money in an attempt to boost the economy.

It's not a fun experience, and there's a good chance you'll end up poorer as a result. But it's not the end-of-the-world that the media will portray it as being. Particularly when there's been a long run since the last one.

A recession will drag on, and a recovery can be slow. It can be a real slog, particularly if you're out of work.

 

[Rolf Latham]

Hi Rolf.

What is LockNut?

A fastener commonly used in engineering

Basically a Nut on a bolt that is designed to stop it coming loose under load or vibration, comes in many forms, including

Nylock (a nylon sleeve provides sufficient friction to not come loose)
Two nuts tightened against each other
Star washer etc

In Rolf Finance lingo, it means to have your loans to 80 or 90 % where possible at most times, and hold the cash thus released for challenge or opportunity

LOCs are at risk of close down during tough liquidity times, especially so for unused facilities.

ta
rolf

 

[Rolf Latham]

[*]The government will come up with some way of wasting taxpayers' money in an attempt to boost the economy.

Really ??

ta
rolf

 

[jenni_nextplace]

Its a good idea to always have enough savings to survive for at least 6 months at all times regardless of a pending recession.

 

[DavidMc]

In Rolf Finance lingo, it means to have your loans to 80 or 90 % where possible at most times, and hold the cash thus released for challenge or opportunity

I completely agree! The only time I ever didn't draw the funds down I was caught out with low vals (I had much higher vals completed 6 months prior, but did not draw them down).

Would you go:

1. Same bank (i.e. a separate loan facility, paying off the loan minus $100 with the option of redrawing). To me, similar risk to a LOC.
2. Same bank (i.e. a separate loan facility, funds in an attached offset account)
3. Different bank in high interest account.

I do #2.

 

[nhg]

Do banks call in loans at 90% LVR or should I leave them at 80%?

Is there a way of withdrawing the equity from the houses 100% fixed? Im pretty sure there is another $30k there.

 

[DavidMc]

At a guess nhg you could extract the increased equity as a separate, variable loan if you wish.

 

[Aaron_C]

Is there a way of withdrawing the equity from the houses 100% fixed? Im pretty sure there is another $30k there.

Yes, create a new loan account.

 

[Fox89]

Is a recession gunna happen? If it did I would buying a couple of houses!

 

[Intrinsic_Value]

Hi Everyone!

Something that’s been on my mind recently.

Now I’m not arguing there is or isn’t going to be a recession. However let’s assume there was one. What are some steps those who have undergone a previous cycle have undertaken to get through the troubling times.

My assumption has been, prices fall, rents stay the same though higher rent-defaults, interest come down, so all in all, not a bad time if you have property at a reasonable LVR and a steady non-rental income of some sort. Would this be a reasonable assumption?

What has your experience been during past recessions as such? Is there something you wish you could have done beforehand, or were you unable to take precautions till it all happened?

Hope you are all doing great!
NHG

(a) watch those debt levels, be responsive to market conditions. Sometimes the market is easy, ie lenders are easy, sometimes they are not. Understand that the lenders are run by employees with short term agendas' Don't play the wrong season. If its winter, play by winter rules.

(b) who gives a toss against price movements. Price movements are for speculators. Revenue is the key for investors. Are you an investor or a trader (speculator). For many years I have been harping on about this on somersoft. Sun Sze Art of War: know yourself, know your enemy, a thousand battles a thousand victories.

LVR: reasonable
Rents: reasonable
Interest rate reductions: reasonable under the scenario you have highlighted.

Conclusion: fully concur with your own conclusion. Move along move long, nothing really to see here (or post a british sign)

 

[Intrinsic_Value]

For all this rubbish too and frow about property, ask yourself this:

is there a fundamental surplus of property, has the increase in the supply of property occurred in your area of interest, happened to such a degree that it effects basic demand/supply issues.

 

[Graemsay]

Have the banks called in 90% loans in the past?

If you're meeting your payments then I can't see them asking for their money back. Repossessing a performing loan would likely result in them making a loss, and if their books are a bit dodgy then that would be crystallized.

The British experience has been that borrowers in trouble have been granted a large degree of forbearance by the banks.

As for the government finding ways to spend your money, the chances are they'll make things much, much worse by doing so...

http://www.guardian.co.uk/business/2013/jun/04/george-osborne-help-to-buy-moronic