what will make you think you have stretched too far?

[ericproperty]

Hi guys

just would like to start a conversation and discussion re whether investors have stretched themselves too far and into a risky zone.

most of us would like to have as many IPs as possible for capital growth. however, some investors, at times, can be a bit over confident and optimistic. I guess my question is:

what factors will ring the alarm bell to a sensible investor " slow down, do not stretch yourself too far"

just an example:

say an investor has over $1.5 m loan, IR is mostly fixed at 4.9, overall LVR 0.7, overall yield 6, overall out of pocket $30/wk (take into consideration of rates, strata, insurances, agent fees)

(plus PPOR mortgage repayment, living expenses. above average income)

is the above investor stretching himself?herself?

 

[Ace in the Hole]

So much depends on income and security of income.

 

[EN710]

I think it's different for everyone, depending on their appetite for risk, age, future plans, comfort level etc.

This guy in your scenario might be doing well, e.g. good money habit, no big financial plan in the near future (bigger house, kids, big travel), good amount of buffer, reasonably priced PPOR, can handle risk quite well, above average income with a lot left over after all payments (i.e. earning 100K and earning 200K make a big difference).

He might be doing terrible with bad money habit, can't sleep at night with the debt, going to move from two income to one, and many other factors.

As for me personally, when my gut is starting to churn, that's the time where I need to put a pause and reassess.

 

[ericproperty]

Hi Ace and EN71

I guess you are right, everybody is different from others.

I am just wondering whether there is some benchmark we could use to assess our own situation, like mentioned previously, some investors (include me) would like to buy more IPs in the initial investing stage, however knowing the limit and when to stop/pause is very import.

 

[Terry_w]

I've seen a few property investors go bankrupt. It was mainly because they were banking on growth which didn't happen. they couldn't meet cashflow and couldn't sell in time.

 

[Charlotte30]

What will make you think you have stretched too far

Capital growth is a bonus. I make sure that I have/will have rent coming in to cover mortgages with room to move. Slow but safe for me.

 

[Charlotte30]

What will make you think you have stretched too far

When costs exceed income I have stretched too far. It may be temporary eg project that is not yet finished. I like to make sure that I have/will have rent coming in to cover mortgages with some room to move. Capital growth is a bonus.

 

[danel]

I was buying over my head, frequently dipping into my loc, business slowing, so i sold my half share in a block of units and a warehouse, and now i dont dip so much!

 

[LeoT]

When I am unable to meet my current financial obligations with some buffer room.

 

[Rolf Latham]

Thinking and being are 2 different things

some folks feel they are stretched with a Portfolio that has no loan and provides 50 k a year recurring EBIT income, yet others are fine with millions of loans at > 90 % lvr.

Its such an open ended question, thats probably more like a poll - there is no specific answer.

My perspective where I have seen peops sweat are where they havent designed their structures and financial goals and possible outcomes against their risk profile............. and many times this has come about because they were either accidental investors, led by a single idealogy or an individual that has a single one eyed idealogy - ie xyz town is a hot spot, or granny flats are the only way, or land and build etc.



ta
rolf

 

[Jamie M]

just an example:

say an investor has over $1.5 m loan, IR is mostly fixed at 4.9, overall LVR 0.7, overall yield 6, overall out of pocket $30/wk (take into consideration of rates, strata, insurances, agent fees)

(plus PPOR mortgage repayment, living expenses. above average income)

is the above investor stretching himself?herself?

It all comes down to the individual and what they're tolerance to risk looks like.

For me - I personally wouldn't feel too stretched in this predicament.

Cheers

Jamie

 

[ericproperty]

morning guys.

thanks for the replies and advice.

property investing is such a rewarding thing to do, it can also be potentially risky, this is why I keep questioning myself whether I have stretched (or is going to) myself too much.

anyway life is about opportunities and risks.

 

[Rolf Latham]

anyway life is about opportunities and risks.

Indeed

An opportunity isnt one unless one makes use of same.

Many times the risk of doing "nothing" for the avoidance of risk brings other risks to fruit that we had not planned on.


ta
rolf

 

[tobe]

your wife.

 

[jpcashflow]

Every one has different goals, appetite for risk and perception on what is good vs bad.
I strongly believe that your plan must evolve on a regular basis to remain successful.

Most important thing for me is having my PPOR paid off - I am only 30 - Having a PPOR paid of has provided me with a luxury to invest.
I have a couple of investment properties and the LVR are low, one is at 30% and my development site is at %50 LVR.

I purchased an investment on Saturday with my LVR being 90% but the property provides good cash flow where the property is positively geared at about $200 a month.

I could go out and buy more properties but i would prefer quality...