Surviving the soft depression
- Thread starter nonrecourse
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Hi N R.
I've been scouring through your numerous posts for some time now. I read them with interest, along with EvanD's and although I aim to maintain an optimistic view, I don't wish to be too quick to dismiss your opposing views.
It seems to me, no matter how poorly your p.o.v. is received by the majority here, that you do genuinely care about our ability to survive the fall out.
I had intended to pm you, but felt that if you were good enough to answer this on the forum that others may benefit from your thoughts using my example.
What I would like you to answer for me, if you would be so obliging is this:
(I'm very well aware this would only be your view and in no way would constitute advice)
In your view, what should we be doing with our portfolio? Is it too late by your thinking to protect ourselves from the storm you see coming?
Our fledgling portfolio looks somewhat like this. (All up to the minute valuations.) PPOR #value $375k owned outright.
i.p.1 #value $265K owe $155k fixed til October 2010 - rent soon to be $240
i.p.2 # value $340K owe $255K variable - rent soon to be $330
i.p.3 #value $350K owe $317K variable - rent $335
newly established untouched loc. of $150k. These properties are all around 45 mins south of Adelaide. Without the credit crisis, I would have expected the capital growth in this area to be very good. (not excellent, it's coastal, but is lacking public transport to employment hub areas however this should be rectified within 10 years. We had no plans to sell.)
all of these are unfortunately x colled ~ aaarrghhh, the benefit hindsight brings!
We self manage all of these.
We sold the family business early in this financial year. It was a business that relied heavily on Chinese imports and since I presumed,( time will tell if correct) that we will have a long period with a low Aussie dollar it felt like the right thing to do. We have had a long overdue holiday since.The original plan after selling the business was to build 3 houses every two year period. Sell two of them and keep one. This is no longer viable for us it seems in the current trend so we have had to change tack.
We intend now to live on a shoe string, from meager proceeds from the sale until I find work at least 3 days a week. ( I'm not fussy as I am unskilled in any particular area and am now 37.)
My husband plans to begin a small business from home. We have two kids. We don't expect our total household income for 2009 financial year to be more than $45k.
This will of course mean no lavish lifestyle. That's okay, we have no other debt, and simple needs.
Like many here, we are hoping to lock rates in long and low, some time between Feb and June/July next year.
Do you believe, based on the above particulars that we should be selling our property? Some? All of it? Being cross colled it would be an extremely expensive exercise to sell up. Bearing in mind also, that on smallish income we are not likely to be able to borrow so easily in the future, to buy it all back, even if prices plunge.
What are the ramifications you forsee if we don't sell up. Will we be worse off still?
I"m sorry for the ramble but I'm trying to "get inside your head" and see what is so wrong with our current position.
My take on our situation was that even though our hands will be tied and we won't likely be able to add to our portfolio for quite some time, that we should be able to hang in there. i.e. "SURVIVE the soft depression"
IS MY THINKING FLAWED?
I've been scouring through your numerous posts for some time now. I read them with interest, along with EvanD's and although I aim to maintain an optimistic view, I don't wish to be too quick to dismiss your opposing views.
It seems to me, no matter how poorly your p.o.v. is received by the majority here, that you do genuinely care about our ability to survive the fall out.
I had intended to pm you, but felt that if you were good enough to answer this on the forum that others may benefit from your thoughts using my example.
What I would like you to answer for me, if you would be so obliging is this:
(I'm very well aware this would only be your view and in no way would constitute advice)
In your view, what should we be doing with our portfolio? Is it too late by your thinking to protect ourselves from the storm you see coming?
Our fledgling portfolio looks somewhat like this. (All up to the minute valuations.) PPOR #value $375k owned outright.
i.p.1 #value $265K owe $155k fixed til October 2010 - rent soon to be $240
i.p.2 # value $340K owe $255K variable - rent soon to be $330
i.p.3 #value $350K owe $317K variable - rent $335
newly established untouched loc. of $150k. These properties are all around 45 mins south of Adelaide. Without the credit crisis, I would have expected the capital growth in this area to be very good. (not excellent, it's coastal, but is lacking public transport to employment hub areas however this should be rectified within 10 years. We had no plans to sell.)
all of these are unfortunately x colled ~ aaarrghhh, the benefit hindsight brings!
We self manage all of these.
We sold the family business early in this financial year. It was a business that relied heavily on Chinese imports and since I presumed,( time will tell if correct) that we will have a long period with a low Aussie dollar it felt like the right thing to do. We have had a long overdue holiday since.The original plan after selling the business was to build 3 houses every two year period. Sell two of them and keep one. This is no longer viable for us it seems in the current trend so we have had to change tack.
We intend now to live on a shoe string, from meager proceeds from the sale until I find work at least 3 days a week. ( I'm not fussy as I am unskilled in any particular area and am now 37.)
My husband plans to begin a small business from home. We have two kids. We don't expect our total household income for 2009 financial year to be more than $45k.
This will of course mean no lavish lifestyle. That's okay, we have no other debt, and simple needs.
Like many here, we are hoping to lock rates in long and low, some time between Feb and June/July next year.
Do you believe, based on the above particulars that we should be selling our property? Some? All of it? Being cross colled it would be an extremely expensive exercise to sell up. Bearing in mind also, that on smallish income we are not likely to be able to borrow so easily in the future, to buy it all back, even if prices plunge.
What are the ramifications you forsee if we don't sell up. Will we be worse off still?
I"m sorry for the ramble but I'm trying to "get inside your head" and see what is so wrong with our current position.
My take on our situation was that even though our hands will be tied and we won't likely be able to add to our portfolio for quite some time, that we should be able to hang in there. i.e. "SURVIVE the soft depression"
IS MY THINKING FLAWED?
Hi N R.
I've been scouring through your numerous posts for some time now. I read them with interest, along with EvanD's and although I aim to maintain an optimistic view, I don't wish to be too quick to dismiss your opposing views.
It seems to me, no matter how poorly your p.o.v. is received by the majority here, that you do genuinely care about our ability to survive the fall out.
I had intended to pm you, but felt that if you were good enough to answer this on the forum that others may benefit from your thoughts using my example.
What I would like you to answer for me, if you would be so obliging is this:
(I'm very well aware this would only be your view and in no way would constitute advice)
In your view, what should we be doing with our portfolio? Is it too late by your thinking to protect ourselves from the storm you see coming?
Our fledgling portfolio looks somewhat like this. (All up to the minute valuations.) PPOR #value $375k owned outright.
i.p.1 #value $265K owe $155k fixed til October 2010 - rent soon to be $240
i.p.2 # value $340K owe $255K variable - rent soon to be $330
i.p.3 #value $350K owe $317K variable - rent $335
newly established untouched loc. of $150k. These properties are all around 45 mins south of Adelaide. Without the credit crisis, I would have expected the capital growth in this area to be very good. (not excellent, it's coastal, but is lacking public transport to employment hub areas however this should be rectified within 10 years. We had no plans to sell.)
all of these are unfortunately x colled ~ aaarrghhh, the benefit hindsight brings!
We self manage all of these.
We sold the family business early in this financial year. It was a business that relied heavily on Chinese imports and since I presumed,( time will tell if correct) that we will have a long period with a low Aussie dollar it felt like the right thing to do. We have had a long overdue holiday since.The original plan after selling the business was to build 3 houses every two year period. Sell two of them and keep one. This is no longer viable for us it seems in the current trend so we have had to change tack.
We intend now to live on a shoe string, from meager proceeds from the sale until I find work at least 3 days a week. ( I'm not fussy as I am unskilled in any particular area and am now 37.)
My husband plans to begin a small business from home. We have two kids. We don't expect our total household income for 2009 financial year to be more than $45k.
This will of course mean no lavish lifestyle. That's okay, we have no other debt, and simple needs.
Like many here, we are hoping to lock rates in long and low, some time between Feb and June/July next year.
Do you believe, based on the above particulars that we should be selling our property? Some? All of it? Being cross colled it would be an extremely expensive exercise to sell up. Bearing in mind also, that on smallish income we are not likely to be able to borrow so easily in the future, to buy it all back, even if prices plunge.
What are the ramifications you forsee if we don't sell up. Will we be worse off still?
I"m sorry for the ramble but I'm trying to "get inside your head" and see what is so wrong with our current position.
My take on our situation was that even though our hands will be tied and we won't likely be able to add to our portfolio for quite some time, that we should be able to hang in there. i.e. "SURVIVE the soft depression"
IS MY THINKING FLAWED?
Hi Silversands;
I'd start by saying there are only three things that are important for all of us 1. Your health 2. Your children 3. Your life partner.
Everything else is window dressing. Anyone who commits suicide because they lose their fortune on the stock market, property market etc, etc is mentally ill full stop.
As you said in your post I cannot give you advice only my opinion. Like everyone else on this site I am human and therefore have clay feet. My take is that we are facing a financial tsunami that your children will tell their grandchildren about.
If you read the papers or listen to the financial news you may be aware of a fellow in the U.S. by the name of Bernard Madoff. His financial service company has embezeled $50 BILLION of investors funds.
What does this have to do with your investment properties in South Australia you say? This event is just another sign post on the road to that financial tsunami I alluded to earlier. Most Australians are oblivious to the fact that the super rich in North & South America, Europe, The middle east, Asia as well as Australia are taking successive king hits that are going to reverberate for decades.
At the moment it is all about the share market but no asset class will escape the tsunami. The $1,330,000 question for your family is if 1,2 or 3 of your investment properties are empty can you continue to service the mortgages ?
The fact that you have a $150,000 LOC could be a noose rather than a lifeline if you do not have the means to service the additional interest charges. Its an elaborate credit card, all be it at a lower interest rate because of the property it is secured against.
You have liabilities of $727,000 plus break fee's and a past asset value of $1,330,000 which in todays climate at best lets say is worth $1,200,000. So I am assuming you have lost 10% of the value if you sold up today in a rapidly contracting market.
As you correctly mentioned it would be an expensive exercise to unwind your xcol arrangement. At a worst case scenario if your properties droped 50% from your valuation you would have 0% equity. That means you can forget about the LOC its fools money anyway.
At the moment I'm sure your bank feels very secure with your debt ratio and would hazzard to guess that more than 80% of the contributors on this site would not have that amount of equity.
Your lifestyle and your ability to live within your means suggest that the tougher it gets the more of your neighbours that will be in the same boat because their doodads will pull them down
If one of your investment properties is empty you rent out your home and move into the empty investment property. (I'm assuming your home has better rental appeal).
Your priority at the moment should be to save a three month buffer for each of your investment properties. You should never buy another property in your names. Long term you should be looking at a D.I.Y. super fund that you eventually accquire property in.
So yes I agree with your assessment. Your biggest problem is you and your husbands low exertional income. I'm happy to chat more if you want to PM me
Regards NR
or - you could look at the upside.
your rent would net around $850/wk - $44,200/yr after rates etc
your interest repayments at 6.5% would be $47,255/yr
difference is $57/wk outgoing.
if you can lock in an interest rate below 6.1% then you are breaking even. not hard to do for 3 years at the moment (can name two under 6%, not including the gone westpac 4.99)
your rents seem at a reasonable middle level so shouldn't be affected to severely - not like the $1000/wk joints - but if you are unsure of your immediate financial future, even if you locked in at westpac's current 5.49% propack then you would clear around $80/wk, which you have as a buffer to drop your rents if required, or put aside for a rainy day.
a loc would just be there for emergencies.
asset value gives and nice warm and fuzzy feeling - but as long as you can hold the property long term, it doesn't matter that it might drop in value 5% this year ... in 3 years time it might go up 40% in one year (ergo 2003). asset value is great to be able to access to borrow more money - but don't get carried away with the very short term. and anything less than 5yrs holding is considered short term.
diy super also "sounds" great - if your nearing retirement age, but if you are anything under 50, they are very restrictive, especially if you want to retire in 10 years time at 47 ... you'd have to wait another 13 years before you can access your money.
nr means well, but he is a diehard pessimist - i guess i am a optimist - somewhere is the middle ground. you need to find where in that middle ground you feel comfortable - and this may mean locking in for the short term, until your employment sorts itself out. personally, given you positive situation, i wouldn't consider selling a thing.
have fun and don't forget to laugh.
your rent would net around $850/wk - $44,200/yr after rates etc
your interest repayments at 6.5% would be $47,255/yr
difference is $57/wk outgoing.
if you can lock in an interest rate below 6.1% then you are breaking even. not hard to do for 3 years at the moment (can name two under 6%, not including the gone westpac 4.99)
your rents seem at a reasonable middle level so shouldn't be affected to severely - not like the $1000/wk joints - but if you are unsure of your immediate financial future, even if you locked in at westpac's current 5.49% propack then you would clear around $80/wk, which you have as a buffer to drop your rents if required, or put aside for a rainy day.
a loc would just be there for emergencies.
asset value gives and nice warm and fuzzy feeling - but as long as you can hold the property long term, it doesn't matter that it might drop in value 5% this year ... in 3 years time it might go up 40% in one year (ergo 2003). asset value is great to be able to access to borrow more money - but don't get carried away with the very short term. and anything less than 5yrs holding is considered short term.
diy super also "sounds" great - if your nearing retirement age, but if you are anything under 50, they are very restrictive, especially if you want to retire in 10 years time at 47 ... you'd have to wait another 13 years before you can access your money.
nr means well, but he is a diehard pessimist - i guess i am a optimist - somewhere is the middle ground. you need to find where in that middle ground you feel comfortable - and this may mean locking in for the short term, until your employment sorts itself out. personally, given you positive situation, i wouldn't consider selling a thing.
have fun and don't forget to laugh.
ahh Lizzie youth is wasted on the young In the blink of an eye 23 years passes by. My take on purchasing some of the property in an SMSF is more about asset protection cause your creditors cannot get at it So then you can go out and be greedy (sometimes) and get away with gearing at 60/70 and dare I say it 80%
In the blink of an eye 23 years passes by. My take on purchasing some of the property in an SMSF is more about asset protection cause your creditors cannot get at it So then you can go out and be greedy (sometimes) and get away with gearing at 60/70 and dare I say it 80%Wow! Thanks NR,
I appreciate the time that went in to that post. LOL Lizzie, you're right, NR's take could definitely be viewed as pessimistic, but I am always wary of confirmation bias regarding my more optimistic views. Just feeling the jitters over our current distinct lack of income. I just felt compelled to lay it all on the line coz I can't help but think NR has been getting a raw deal over his viewpoint. I thought that by answering me, some others may realize his intentions are good. Yeah, I hope he's wrong! But I don't want to end up with egg all over my face coz I refused to consider the "possibility" things might be as bad as he predicts. I just want to plan for the best but be prepared for the worst.
Recent rate cuts are certainly bringing us close to neutral territory, once we get the employment thing sorted I will feel more comfortable. That being said, money couldn't buy the satisfaction that came from having an extended break with the family without all the stress involved with running a business.
Going to go and ponder what you both had to say.
P.S. Lizzie - always having fun!
Many thanks.
I appreciate the time that went in to that post. LOL Lizzie, you're right, NR's take could definitely be viewed as pessimistic, but I am always wary of confirmation bias regarding my more optimistic views. Just feeling the jitters over our current distinct lack of income. I just felt compelled to lay it all on the line coz I can't help but think NR has been getting a raw deal over his viewpoint. I thought that by answering me, some others may realize his intentions are good. Yeah, I hope he's wrong! But I don't want to end up with egg all over my face coz I refused to consider the "possibility" things might be as bad as he predicts. I just want to plan for the best but be prepared for the worst.
Recent rate cuts are certainly bringing us close to neutral territory, once we get the employment thing sorted I will feel more comfortable. That being said, money couldn't buy the satisfaction that came from having an extended break with the family without all the stress involved with running a business.
Going to go and ponder what you both had to say.
P.S. Lizzie - always having fun!
Many thanks.
ahh Lizzie youth is wasted on the young
This is an issue that I have with people that peddle a variety of muti-layered structures as offering protection from creditors. I have trusts, companies and individually owned properties and personally I think that structures may make it harder but nothing will protect you from creditors in the long run. Try not paying tax or rates for a while and see how well the structure protects your assets.
I have seen the Family Court unwind structures to access assets. People may believe they are protected but testing it is another thing altogether.
Cheers
Shane
PS: previously divorced so i have some skin in the game
This is an issue that I have with people that peddle a variety of muti-layered structures as offering protection from creditors. I have trusts, companies and individually owned properties and personally I think that structures may make it harder but nothing will protect you from creditors in the long run. Try not paying tax or rates for a while and see how well the structure protects your assets.
I have seen the Family Court unwind structures to access assets. People may believe they are protected but testing it is another thing altogether.
Cheers
Shane
PS: previously divorced so i have some skin in the game
For a site that propounes financial independence
your comments are not typical of someone who operates with asset protection in mind but rather a get rich quick mentality that so many property investors who are really not. They are happy to get the tax advantages that negative gearing entitles it in one breath but sneer at one of the foundations of managing risk. As for the family court the term $exually transmitted debt comes into its own.You don't really believe that the knobs in Valcluse, Toorak, Camberwell etc set up trusts as a means of supplying barristers and silks with a benevolent slush fund do you ??? Like everything in life you don't always get what you pay for... cavet empator. Rather than blaming someone else, from time to time we all need to look in the mirror.
Operating through trusts involves more than parking our brains at the reception when seeing a legal advisor, accountant or financial advisor. If you don't go in with a clear idea of your end plan you are for sure setting yourself up to be disappointed.
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did anyone see the correlations here...with the link i mean?
funny that $2tril has been lost out of home values in the US, but that is the exact amount the Fed has been accused of funding, without congress approval, in bailouts.
here fishy fishy fishy....
just a thought actually - for a REAL conspiracy theory for you all.
banks and valuers are in each other's pockets. deniable, yes - but widely accepted.
the Fed is a cartel of banks. deniable, yes - but widely accepted.
banks tell valuers to "write down" asset values bit by bit, systematically over time. they don't have a big nationwide meeting or memo with everyone in Oct 07 and lay out the plan - that's just dumb. one big bank starts with the heebiejeebies, another get scared, and so on and so forth. call it a "crunch" or whatever.
real estate agents follow suit because it's hard to argue with a bank AND a valuer at once.
put some solid stats out there for distraction, like household debt levels, subprime loans etc. plug it hard in the media.
money is no longer solid, hard cash. it's a set of 1s and 0s in a computer's binary code. you get charged a $600 loan establishment fee for someone to change numbers on a computer and there we go - you have money.
so, the asset value write downs is money moved from one column in the Fed's computer systems into the other column. $2tril from home values into a Rockefeller's back pocket or something.
Consider the fact that the Fed now "own" all these banks is also cause for concern, but also make it very possible. It's the socialisation of the money supply.
now THERE'S a story for People Magazine for you.
banks and valuers are in each other's pockets. deniable, yes - but widely accepted.
the Fed is a cartel of banks. deniable, yes - but widely accepted.
banks tell valuers to "write down" asset values bit by bit, systematically over time. they don't have a big nationwide meeting or memo with everyone in Oct 07 and lay out the plan - that's just dumb. one big bank starts with the heebiejeebies, another get scared, and so on and so forth. call it a "crunch" or whatever.
real estate agents follow suit because it's hard to argue with a bank AND a valuer at once.
put some solid stats out there for distraction, like household debt levels, subprime loans etc. plug it hard in the media.
money is no longer solid, hard cash. it's a set of 1s and 0s in a computer's binary code. you get charged a $600 loan establishment fee for someone to change numbers on a computer and there we go - you have money.
so, the asset value write downs is money moved from one column in the Fed's computer systems into the other column. $2tril from home values into a Rockefeller's back pocket or something.
Consider the fact that the Fed now "own" all these banks is also cause for concern, but also make it very possible. It's the socialisation of the money supply.
now THERE'S a story for People Magazine for you.
I have trusts, companies and individually owned properties and personally I think that structures may make it harder but nothing will protect you from creditors in the long run. QUOTE]
Hi NR
I'll be generous and assume that you skipped over this part of my post when you made your comments. Asset protection is an important foundation stone in any investment plan. However there are periods where for some investors building some wealth to protect is more important than protecting the limited assets they have. An example is those who are starting out in investing with a property. The costs and risks have to be weighed and often favour a more risky approach that an investor with greater assets or cashflow may not choose. However, over time their circumstances hopefully would improve and they would be able to use different structures to protect their assets dependent upon their circumstances.
There are also times when you can choose to use a structure to protect an asset early, for example when you don't need the negative gearing cashflow as the investment is cashflow positive. Or where the holding costs are so low as to make asset protection a more worthwhile choice than seeking the NG cashflow. These investments are returning and would benefit from additional asset protection.
I am still interested to hear how you suggest that assets that have been offered as security can be protected from your creditors? I can see that an asset that is unecumbered and is in an entity such as a trust is obviously protected. But my understanding is once the asset is offered as security then the banks will gain access to it.
Just to let you know... we operate in the medical services area and spend a lot of money on advice, structures, accountants and appropriate insurances. A lot. We do pay for multiple opinions and go into our meeting with questions rather than being by the nose.
Still interested in how you remove access to those assets discussed above.
Cheers
Shane
I'll buy one! Maybe you'll make as much from selling them as the genius who came up with the smile t-shirt in the 80's! Then you'd not only survive the depression, you'd financially revel in it!
