What happens if interest rates hit 10%+ for a while, rents fall and let's say property prices fall by 20-30% and this then lasts for 5-10 years?
That's what I looove about the IP business. It compensates. If IRs hit 10%, which they nearly did recently, rents DON'T fall. Investors leave, or don't enter the market, rents RISE, as they are doing right now. On the other side of the coin, when rents are stable, investors are entering the market and VALUES are then rising. ....and, to your question, nothing but nothing lasts for 5-10 years. We have elections every 3 years, things get too bad, we change gov. Remember, 70% of the players are OO who, unlike the stock market, DON'T get margin calls, so they don't HAVE to sell. More than any other factor, that stabilises IP prices.
The bank won't give you money to support your LOE strategy, as the value of your assets would fall and then you'd be stuffed right? Do you have some sort of buffer to ride this sort of scenario out, and if so, what is it?
Yep. Two BIG buffers. Currently own seven IPs free and clear that I can sell tomorrow without reference to any lender. Also, see above post on LVRs. That's our "day to day" buffer. Your point is valid though. You DO need enough equity to ride out the slumps. But I don't think the slumps are as bad as you make out. (Bought first PPOR 35 years ago, and been serious IP for 11 years so ....)
And worse case scenario, what if prop prices fall for a very long time and do nothing for years and years? Sell some prop's and then live off rents?
See comment above. But if prop prices fall rents will rise MARKEDLY and IRs will fall (this is hapening NOW as I type) so holding on is comparitively easy. (You'd think I was bragging if I told you how much each one % IR drop saves us.) We've NEVER sold an IP. Despite what other forumites say about "chopping and changing" once we've done the hard yards to get 'em in the flock, we never plan to sell. Kids would kill me !!
Essentially, you're putting a lot of faith in this sort of strategy, especially if you keep borrowing over a 10 year period and then you have a crash somewhere along the line. It's a bit scary to be honest, but exciting also!
But aren't YOU Mr. Bludger, also putting faith in the SAME "growth" strategy to grow your portfolio ? If you don't believe in it, why the heck are you doing it? If you don't think IPs are going to grow in value why the heck are you planning to accumulate more? What, then you think you "retire" and the game just stops ????? Why ??
All comments made in good nature! "Peace" man !!
LL