What would you consider a "safe" LVR for a conservative, risk adverse investor?

[jerrybee]

I'm not talking about purely paying down loans or having bigger deposits - money in LOC or offsets counts too. So for the purposes of this hypothetical question, 90% LVR with a 10% LOC buffer, 10% in shares and 10% in equity you haven't extracted yet means you're 60% LVR.

Anyway we've seen plenty on this forum hit 90-95%. I'm curious what the other side of this coin looks like. What would you guys consider to be the definition of "conservative"? At what point are you safe from all but the most unlikely disasters (e.g. WW3)?

 

[Ausprop]

I believe 50-60% is ok. 80 is too high, a slight wobble in property prices and a need to sell fast can quickly see you under water

 

[jerrybee]

I believe 50-60% is ok. 80 is too high, a slight wobble in property prices and a need to sell fast can quickly see you under water

Yeah this is what I had in mind too. I'm looking to scale back risk, and will be saving and targeting the 50-60% mark in a few years.

 

[BayView]

I believe 50-60% is ok. 80 is too high, a slight wobble in property prices and a need to sell fast can quickly see you under water

Yep. no more than 80%, and no more than 40% of income towards repayments of all loans/debt.

Having been the lucky recipient of fluctuating positions of grandeur and chaos financially over the years; I'd recommend this.

 

[Xenia IM]

expose yourself to as little debt as possible in the next few years at least.

 

[D.T.]

88-90 IMHO.

Any higher and you run the risk of not being able to get any top ups.
Any lower and you use up too much of your buffer cash.

 

[jerrybee]

88-90 IMHO.

Any higher and you run the risk of not being able to get any top ups.
Any lower and you use up too much of your buffer cash.

As I said, "I'm not talking about purely paying down loans or having bigger deposits - money in LOC or offsets counts too."

So include any liquid equity as part of the calculation.

 

[sanj]

88-90 IMHO.

Any higher and you run the risk of not being able to get any top ups.
Any lower and you use up too much of your buffer cash.

90% for someone who describes himself as risk averse??

 

[Peter_Tersteeg]

From a lenders perspective, my understanding of some general terms on how they assess risk:

< 60%: Almost no risk.
60% - 80%: Low risk.
80% - 90%: Moderate risk.
90% - 95%: High risk.
> 95%: Call someone else.

 

[j_p]

For me it depends on the size of your portfolio too. First couple I was happy to Max out lending. As I go forward with more debt that can't only be serviced from wages I will look to bring down my LVR.
If been conservative I think as your portfolio grows your LVR decreases to keep the same sleep at night factor. Or does everyone disagree.

 

[BayView]

For me it depends on the size of your portfolio too. First couple I was happy to Max out lending. As I go forward with more debt that can't only be serviced from wages I will look to bring down my LVR.
If been conservative I think as your portfolio grows your LVR decreases to keep the same sleep at night factor. Or does everyone disagree.

I have found that the zeros on the end don't make much difference after a while.

The SANF for me comes back to the LVR and DSR.

I would be more than happy to be servicing $100m in debt with an LVR of 70% and a comfy DSR - tomorrow.

Of course; you would want it to be spread over a number of income producing assets.

 

[greedy2000]

just putting this out there but in the financial planning world anyone who borrowed funds to invest would be deemed to be in the "High Growth" or "high risk" profile....

there is nothing conservative about borrowing say $500K and buying a house to speculate on capital growth....

So really for a conservative / risk adverse investor you should have a LVR of 0%.

with a LVR of 70% if your property decreases in value by 30% you have lost 100% of your equity..

 

[devank]

no more than 40% of income towards repayments of all loans/debt.

Before rent or after rent?

< 70%: People who have accumulated enough
70 - 80%: Single income + in accumulation phase
80% - 90%: Double income + in accumulation phase
90% - 95%: People who has really good back up plan

 

[Brady]

I believe 50-60% is ok. 80 is too high, a slight wobble in property prices and a need to sell fast can quickly see you under water

Shouldn't be investing in property if you need to sell fast, property isn't liquid.

There are far too many factors.

For me 90% is safe as I've got an approx 10% buffer in offest, and believe in the assest I've purchased.

For someone else 90% is high risk and not safe.

At what point are you safe from all but the most unlikely disasters (e.g. WW3)?

At what point would you ever be considered safe in the case of a WW?

 

[jerrybee]

At what point would you ever be considered safe in the case of a WW?

I think you misread my question, I meant all reasonably likely scenarios, which *doesn't* include WW3 - that's something no investor would realistically need to plan for Otherwise it's too easy, you'd say that the only way to be 100% risk free is to have 0% LVR. This is not the point of this thread!

 

[HiEquity]

For me it depends on the size of your portfolio too. First couple I was happy to Max out lending. As I go forward with more debt that can't only be serviced from wages I will look to bring down my LVR.
If been conservative I think as your portfolio grows your LVR decreases to keep the same sleep at night factor. Or does everyone disagree.

+1

When your salary is big enough to cover any mistakes in the portfolio and you're young enough to start again then leveraging up is a pretty safe and conservative strategy.

When your portfolio makes your salary look like a bad joke and everything stands or falls on its own merits, then it is worth backing off on the risk side of things a bit. Particularly at the moment when lenders look like backing right off themselves on lending to investors... 60% makes more sense as a ceiling in those circumstances.

Lower again for the completely retired person who has no hope of ever getting back in to the workforce and whose only alternative strategy is the pension.

 

[Brady]

I think you misread my question, I meant all reasonably likely scenarios, which *doesn't* include WW3 - that's something no investor would realistically need to plan for Otherwise it's too easy, you'd say that the only way to be 100% risk free is to have 0% LVR. This is not the point of this thread!

Haha yup my bad

I don't plan to realistically sell any of the property I hold, so LVR isn't relivant more so what I have in reserve in case required.

 

[D.T.]

90% for someone who describes himself as risk averse??

Keeps more of their money free for their SANF/Buffer that way.
Note, not necessarily maintaining it at that, just acquiring.

 

[Morbius]

I have found that the zeros on the end don't make much difference after a while.

The SANF for me comes back to the LVR and DSR.

I would be more than happy to be servicing $100m in debt with an LVR of 70% and a comfy DSR - tomorrow.

Of course; you would want it to be spread over a number of income producing assets.

^^^^^^^^^^^^^^^^THIS.

It all comes down to a combination of LVR and DSR and you cannot decide what LVR is safe until you know your DSR under a stress test. If you can always service the debt even at 10%+, have no LVR covenants, then LVR becomes almost irrelevant as a risk factor.

 

[see_change]

Keeps more of their money free for their SANF/Buffer that way.
Note, not necessarily maintaining it at that, just acquiring.

this is the way I look at it . The less I put into a specific property , the more I have in reserve .

Also there's a difference between Total LVR and individual properties

Our total LVR is just over 50 % , but we're about to buy more properties . On those we will be borrowing as much as we can secured on the individual properties and then using an LOC to fund the rest including legals .

So effectively we will be borrowing over 100 % .

Our current total LVR at the moment is around 53 % .

Although we're planning on buying multiple properties our total LVR is unlikely to go over 70 % , but that will comedown to how much the banks will lend us and our SANF .

Cliff